We have a deceased customer who had held a CD and an IRA with three beneficiaries, two of whom have come to the bank to open inherited IRAs. The third beneficiary lives out-of-state and does not want to travel to the bank to set up his inherited IRA in person. This beneficiary’s attorney told us that all he must do is provide the bank with a notarized letter of direction. Is this accurate? The CD also has a payable on death (POD) beneficiary who lives out-of-state and does not want to travel to our bank. What are our options for these beneficiaries?

We are not aware of any laws or regulations that would prevent your bank from remotely opening an inherited IRA or remotely distributing the proceeds of a POD account.

Since the out-of-state IRA beneficiary will be a customer of your bank, you should follow your customer identification program (CIP) procedures for verifying the identity of a customer who opens an account without appearing at your bank in person.

Whether a notarized letter of direction — in addition to appropriate identification under your CIP program — is sufficient for a beneficiary to open an inherited IRA depends on your bank’s policies and procedures. We are aware of some banks that have chosen to require a beneficiary claim form with a medallion guaranteed signature when opening an inherited IRA. If your bank does not have such requirements, it may accept a notarized letter of direction at its discretion.

Also, your bank may distribute the proceeds of a CD to an out-of-state POD beneficiary, provided that you have received “(i) legal evidence of death of all trustees or holders of the account, (ii) identification from each beneficiary then living . . . , and (iii) written direction from each beneficiary to close the account and distribute the proceeds in a form acceptable to the institution.”

For resources related to our guidance, please see:

BSA/AML Examination Manual, Trust and Asset Management Services—Overview (“For purposes of the CIP rule, a participant in or beneficiary of [an ERISA account] will not be deemed to be the bank’s ‘customer,’ as such a person will not have initiated the relationship with the bank. . . . By contrast, where an individual opens an individual retirement account in a bank, the individual who opens the account is the bank's ‘customer.’”)

FinCEN Regulations, 31 CFR 1020.100(c) (“Customer means: (i) A person that opens a new account; . . .”)

FinCEN Regulations, 31 CFR 1020.220(a)(2)(i) (“[T]he bank must obtain, at a minimum, the following information from the customer prior to opening an account: (1) Name; (2) Date of birth, for an individual; (3) Address, . . . and (4) Identification number, which shall be: For a U.S. person, a taxpayer identification number; . . .”)

FINRA Investor Alerts, Inherited IRAs— What You Need to Know (“When a brokerage firm is notified of the death of an IRA account holder, it generally sets in motion a fairly straightforward process that starts with each beneficiary completing a beneficiary claim form. In many cases, the form requires that your signature be Medallion Guaranteed. Usually firms will speak only with designated beneficiaries. Be prepared to provide a copy of the death certificate, as well as personal information verifying your own identity, such as your Social Security Number or other information that the firm may require. Specific requirements to complete the transfer process may vary by firm.”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/2(b) (“‘Account’ includes any account, deposit, certificate of deposit, withdrawable capital account or credit union share in any institution.”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/10 (“Upon the death of the last surviving trustee or holder of the account, the institution that maintains the account shall distribute the proceeds to the beneficiary or beneficiaries designated in the agreement controlling the account without further liability. No institution, however, shall be required to distribute the account proceeds until the institution receives (i) legal evidence of death of all trustees or holders of the account, (ii) identification from each beneficiary then living, or business records evidencing the lawful existence and parties authorized to collect on behalf of each beneficiary not a natural person, and (iii) written direction from each beneficiary to close the account and distribute the proceeds in a form acceptable to the institution. . . .”)