Our bank received a notice of reclamation from the Treasury Department in October of 2017 regarding the death of a customer who died in June of 2017. The customer’s daughter, who is a joint owner on the account, did not notify us of the death. The account received supplemental security income (SSI) payments for July, August, and September of 2017. We returned the full SSI payments for July and August to the Treasury Department, and a partial payment for September due to insufficient funds remaining in the account. Last month, the Treasury Department debited the balance of the September payment from our bank. Are we liable for more than 45 days’ worth of benefit payments? If so, can we offset the funds from another joint account the daughter has with our bank?

Yes, in these circumstances your bank is liable to the Treasury Department for more than 45 days’ worth of benefit payments.

The Treasury is authorized to recover the post-death benefit payments from two sources: (1) from all post-death benefit payments in the recipient’s account, and (2) from the outstanding balance of any remaining post-death benefit payments, capped at 45 days’ worth of benefit payments. In other words, your bank’s liability for the outstanding balance of post-death benefit payments that were paid to the account is not reduced by the post-death benefit payments remaining in the account, which are required to be returned to Treasury.

Here, since the Treasury Department apparently was unable to collect the balance of the September post-death benefit payment from the recipient’s account, it was entitled to debit the outstanding balance from your bank, up to 45 days’ worth of post-death benefit payments.

Whether your bank may exercise a right of setoff in another joint account held by the daughter depends on the terms of the joint deposit account agreement. Under Illinois law, the right of setoff can arise when a loan agreement or deposit account agreement provides for a right of setoff. If your joint account agreement authorizes your bank to set off the deposits against monies owed by one of the joint owners to your bank, you may be able to recover the amount paid to the Treasury from the joint account. (Note that the right of setoff also can arise under common law when there is “mutuality” of parties, but such mutuality does not exist in the case of a debt held by an individual who holds an interest in a joint account, such as here.)

For resources related to our guidance, please see:

31 CFR 210.11(c) (“Payment of limited liability amount. If the RDFI qualifies for limited liability under this subpart, it shall immediately return to the Federal Government the amount specified in § 210.11(a)(1). The agency will then attempt to collect the amount of the outstanding total not returned by the RDFI. If the agency is unable to collect that amount, the Federal Government will instruct the appropriate Federal Reserve Bank to debit the account utilized by the RDFI at that Federal Reserve Bank for the amount specified in § 210.11(a)(2).”)

U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 5, page 5 (“An RDFI may qualify to limit its liability if it:

certifies it did not have actual or constructive knowledge* of the recipient’s death or incapacity at the time of the deposit of any post-death benefit payments;

returns all post-death benefit payments it receives after it learns of the death; and

responds to the Notice of Reclamation (Fiscal Service-133), completely and adequately, so that it is received by the Government Disbursing Office within 60 days from the date of the notice.”)

31 CFR 210.11(a) (“If an RDFI does not have actual or constructive knowledge of the death or legal incapacity of a recipient or the death of a beneficiary at the time it receives one or more benefit payments on behalf of the recipient, the RDFI's liability to the agency for those payments shall be limited to:

(1) An amount equal to:

(i) The amount in the account at the time the RDFI receives the notice of reclamation and has had a reasonable opportunity (not to exceed one business day) to act on the notice, plus any additional benefit payments made to the account by the agency before the RDFI responds in full to the notice of reclamation, or

(ii) The outstanding total, whichever is less; plus

(2) If the agency is unable to collect the entire outstanding total, an additional amount equal to:

(i) The benefit payments received by the RDFI from the agency within 45 days after the death or legal incapacity of the recipient or death of the beneficiary, or

(ii) The balance of the outstanding total, whichever is less.”

U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 5, page 20 (“If all or part of the post-death payments have been withdrawn from the account before the RDFI learns of the death, and the RDFI properly responds to the Reclamation and is qualified to limit its liability, then the Reclamation process will be temporarily suspended and the authorizing Federal agency will attempt to collect the outstanding total from the withdrawer(s). If the authorizing Federal agency is unsuccessful in collecting the outstanding total from the withdrawer(s), the RDFI or its correspondent’s Federal Reserve account will be debited (for the 45-day amount) not to exceed the outstanding total.”)
U.S. Treasury Green Book, A Guide to Federal Government ACH Payments, Chapter 5, page 8. (“If at the time the RDFI first receives information of death, all or part of the post-death benefit payments have already been withdrawn from the account, the government does not authorize the RDFI to try to recover the funds from the withdrawer. If the RDFI does so, it acts under its own authority in terms of its contract with its depositor or under state law.”)

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, 533–534 (Bankr. S.D. Ill. 2001) (Where a joint deposit agreement provided that “‘we may exercise our right of setoff against any and all of your Accounts without notice, for any liability or debt of any of you, whether joint or individual . . . [and] Each joint account holder authorizes us to exercise our right of setoff against any and all Accounts of each account holder.’ . . . by maintaining and using the joint account, [the joint account holder] 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, 106, 108 (5th Dist. 1991) (Where a joint deposit account agreement provided that “‘[e[ach depositor (individually and jointly) hereby acknowledges that this financial institution has the right to charge or set-off against any deposit of the depositor with this financial institution any debts or obligations owing by the depositor to this financial institution whether . . . joint or several,’ . . . . 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.”)