We believe that your bank may exercise a valid right of setoff in the joint account funds, even after the joint owner has died.

Under Illinois law, the right of setoff can arise either contractually (when a loan agreement or account agreement provides for a right of setoff) or under common law when there is “mutuality” of parties (the account is owned by the same party that owes the matured debt to the bank).

In several cases, Illinois courts have upheld a bank’s right to set-off a debt owed by one person against funds held in a joint account by that person and other joint owners, provided that the setoff was permitted by language in the bank’s loan or account agreements. Additionally, at least one Illinois case has upheld a banks’ right to set-off an individual debt owed by a joint deposit account owner after the joint owner’s death.

For resources related to our guidance, please see:

• Joint Tenancy Act, 765 ILCS 1005/2(a) (“When a deposit in any bank or trust company transacting business in this State has been made or shall hereafter be made in the names of 2 or more persons payable to them when the account is opened or thereafter, the deposit or any part thereof or any interest or dividend thereon may be paid to any one of those persons whether the other or others be living or not, and when an agreement permitting such payment is signed by all those persons at the time the account is opened or thereafter the receipt or acquittance of the person so paid shall be valid and sufficient discharge from all parties to the bank for any payments so made.”)

• Symanski v. First Nat. Bank of Danville, 242 Ill.App.3d 391, 396–397 (4th Dist. 1993) (“There are two bases on which defendant could assert a right of setoff . . . . Under common law, a bank has the power to apply the deposit to the payment of such depositor’s indebtedness only when there are mutual demands and debts between the parties, and this right of setoff arises at the time the depositor’s indebtedness to the bank has matured. . . . As evidenced by our previous discussion, parties can contractually agree to a right to set off.”)

• In re Dame, 268 B.R. 529, 534 (Bankr. S.D. Ill. 2001) (“{B}y maintaining and using the joint account, Farrel expressly authorized Barbara’s conduct with respect to all funds in the account and consented specifically to the set off from the joint account of debts owed by a single account holder.”)

• Selby v. DuQuoin State Bank, 223 Ill.App.3d 105, 108 (5th Dist. 1991) (In a case where a bank set-off a debt owed by a joint deposit account owner who had died, “a plain reading of the set-off provision of the signature-card agreement indicates to this court that the Bank asserted a right to set off each depositor’s debts or obligations owing to the Bank against the deposit account and that each depositor recognized this right of the Bank to set off either depositor’s debts against the joint account. . . . because the joint depositors, Smith and plaintiff, agreed that the Bank’s right of setoff applied to the joint account for a debt or obligation owing by either of them, the Bank’s setoff of these funds was proper.”)