A 91-year-old father in hospice care has left certificates of deposit (CDs) to his six children. The family is now questioning whether they can cash out those CDs before his death. Their banker has suggested liquidating the CDs now, claiming it may be easier after the father passes.
CDs, or certificates of deposit, are time deposits that lock in funds for a set period. Early withdrawal typically triggers a penalty, often forfeiting several months of interest. The father’s age and health situation complicate the decision, as penalties may reduce the inheritance.
The banker’s advice raises a key question: is it better to cash out now or wait? If the father is still alive, the CDs remain his assets. Any withdrawal would require his consent, and the funds would be added to his estate.
Estate planning rules vary by state, but most allow beneficiaries to inherit CDs without penalty after death. The bank may simply transfer ownership to the named beneficiaries. This process often bypasses probate, making it straightforward for heirs.
However, if the CDs are held jointly with the father, or if no beneficiaries are named, the situation changes. Without designated beneficiaries, the CDs may become part of his estate, requiring probate court approval before access.
The family should first confirm how the CDs are titled. They should check if beneficiaries are listed on the accounts. If so, heirs can typically claim the funds after death without penalties or taxes.
Liquidating now could create immediate tax implications. The father might owe income tax on any interest earned. The cash would also become part of his estate, potentially increasing its value and affecting Medicaid eligibility.
A better approach may be to wait until the father passes. At that point, the bank will release the CDs to named beneficiaries without penalties. This avoids unnecessary fees and minimizes tax complications.
Families facing similar situations should consult an estate attorney or a certified financial planner. Professional guidance ensures the right steps are taken, balancing the father’s wishes with practical financial outcomes.
