Introduction

This guide explains how life‑insurance death benefits are paid via retained‑asset accounts (RAAs) versus ACH direct deposit, what protections apply, how interest and taxes work, and the precise steps to move proceeds into an estate bank account controlled by the executor. It is written for executors, personal representatives, and trustees managing post‑death tasks.

What is a Retained‑Asset Account (RAA)?

• An RAA is a beneficiary payment method where the insurer holds the proceeds and provides draft/check‑writing access (often a "checkbook") to the funds.

• Funds remain with the insurance company (not a bank deposit). The insurer credits interest, which may be variable and can change over time. Disclosures must state the interest methodology, fees (if any), and access terms.

• RAAs are not FDIC‑insured bank accounts. Protection, if available, typically comes from state insurance guaranty associations, which vary by state, have limits, and are subject to eligibility requirements and exclusions. Executors must review the RAA disclosure and the applicable state guaranty association materials.

• Insurers generally also offer lump‑sum payment options (e.g., paper check or ACH to a bank/estate account). Always request and compare options in writing.

What is an ACH life‑insurance payout?

• ACH is an electronic funds transfer from the insurer directly into a deposit account you designate (for estates, that is the estate’s bank account under its EIN).

• Once deposited, funds are held at a financial institution and become subject to deposit‑account protections (for Sunset estate accounts, coverage is FDIC‑insured—see link below).

• ACH is often the fastest path to consolidate proceeds for paying estate expenses and distributing to heirs per the will or state law.

Side‑by‑Side: RAA vs. ACH

Which option should an executor choose?

Choose the method that aligns with your fiduciary duties, local court requirements, and the estate’s workflow:

• Prefer ACH to an estate bank account when you need to: consolidate multiple payouts, pay creditors/taxes from a single ledger, maintain clean records, and move quickly to distributions.

• Consider an RAA only if you require short‑term access before the estate account is ready or if beneficiaries (not the estate) will take direct payment and prefer insurer‑held funds temporarily. If used, promptly sweep the RAA to the estate account once established.

For a streamlined estate account with executor controls and FDIC insurance, see How it works and Life Insurance Search.

Protections explained (FDIC vs. state guaranty associations)

• FDIC coverage applies to eligible bank deposits at insured institutions up to applicable limits per depositor and ownership category. An insurer‑held RAA is not a bank deposit.

• State insurance guaranty associations may protect certain policy obligations if an insurer becomes insolvent, but coverage (and whether an RAA qualifies) is state‑specific, limited, and subject to statutory conditions. Always read the RAA disclosure and check the relevant state association’s guide before relying on coverage.

Interest, taxes, and reporting

• Life‑insurance death benefits are generally income‑tax‑free to the beneficiary/estate. However, interest paid on an RAA or while funds sit in any account is typically taxable income and should be reported (e.g., on Form 1099‑INT). Keep insurer/bank year‑end statements for the estate’s return.

• Compare interest: some RAAs credit rates that may be higher or lower than commercial checking; estate bank accounts may offer competitive yield while preserving FDIC protections and centralized control.

How to move funds from an RAA to an estate bank account

1. Establish the estate: obtain Letters (or equivalent appointment) and an EIN.

2. Open an estate bank account in the name “Estate of [Decedent], EIN xx‑xxxxxxx.” Sunset can set up an FDIC‑insured estate account and keep all records organized; see How it works.

3. Contact the insurer’s RAA unit and request a transfer:

4. Preferred: ACH or wire to the estate account (provide bank name, routing number, account number, account title, and EIN).

5. Alternative: A check payable to “Estate of [Decedent]” mailed to the executor’s address on file.

6. Deposit funds and retain documentation: RAA disclosure, transfer confirmation, check images or ACH confirmations, and monthly statements for the estate file.

7. Use the estate account to: pay approved expenses, track creditor claims, and distribute to heirs per the governing documents or state law. Sunset’s software automates much of this workflow; see Life Insurance Search and How it works.

Practical tips for executors

• Ask for all payout options in writing. Insist on disclosures showing how interest is calculated, current rates, holds, and fees.

• If an RAA is provided by default, you can usually redirect to ACH or request a lump‑sum check to the estate account.

• Keep the estate’s books clean: centralize all incoming proceeds, including life‑insurance, into the estate account before paying expenses or distributing.

• Preserve documents: Letters/appointment, EIN, death certificate, beneficiary forms, insurer payout election, RAA disclosures, and transfer confirmations.

FAQs

• Are RAAs safe? RAAs are obligations of the insurer, not bank deposits. Protections differ from FDIC and depend on state insurance guaranty association rules and limits. Always review disclosures.

• Can an insurer refuse ACH? Payout options vary by insurer and state. Most provide lump‑sum options (check, sometimes ACH). If ACH is unavailable, request a check payable to the estate.

• Do RAAs delay settlement? They can add an extra step (sweeping into the estate account). For efficiency, request direct payment to the estate account when possible.

• Is interest taxable? Yes. Interest credited on RAAs or bank accounts is generally taxable to the estate/beneficiary. Keep 1099‑INTs and statements.

• Will ACH be faster than a check? Often, yes—especially once the estate account is open and validated. Confirm processing timelines with the insurer.

• How does Sunset help? Sunset can verify life‑insurance benefits, prepare and file required probate documents in every U.S. county, set up an FDIC‑insured estate account, and move proceeds under your authorization. See Life Insurance Search and How it works.

Related Sunset resources

• Life Insurance Search: Verify, claim, and route benefits.

• How it works: End‑to‑end estate settlement, FDIC‑insured estate banking, and distributions.

References

• ACTEC discussion of beneficiary‑designation accounts that bypass probate (POD/TOD) and their pitfalls—useful context when coordinating life‑insurance proceeds with overall estate goals: ACTEC: Pitfalls of Pay on Death (POD) Accounts.

• Sunset service details, security, and banking protections: How it works and Life Insurance Search.

This content is for general information. It is not legal, tax, or investment advice. Consult your attorney or tax advisor for your situation.