IBA Compliance Connection

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We had a customer bring in a check payable to her deceased mother’s estate. She wanted to deposit the check into her parents’ family trust account. We advised the customer that she first must open an estate account to deposit the check before it can be transferred to another account. Are we correct that a check made out to an estate must be deposited into an estate account?

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Yes, you are correct that generally, a check made out to an estate only should be deposited into an estate account. Depositing a check made out to an estate into a family trust account could result in a breach of the Uniform Commercial Code (UCC) warranties.

When delivering the check to the payor bank for payment, the UCC requires your bank to warrant that the check was paid to the payee or to the payee’s account. Your bank could be viewed as breaching that warranty if it deposited the check into an account that does not belong to the payee, which is the mother’s estate — not the family trust. This concern is particularly pronounced in the context of a probate estate, where there could be some question as to whether the funds belonging to the estate were properly distributed.

Additionally, the UCC requires your bank to warrant that the check does not have any missing endorsements. Consequently, your bank also should ensure that the customer has authority to endorse a check on behalf of the customer’s estate (for example, as an executor or administrator of the estate).

For resources related to our guidance, please see:

  • Illinois UCC, 810 ILCS 5/4-205(2) (“If a customer delivers an item to a depositary bank for collection: . . . (2) the depositary bank warrants to collecting banks, the payor bank or other payor, and the drawer that the amount of the item was paid to the customer or deposited to the customer’s account.”)
  • UCC, 810 ILCS 5/3-417(a)(1) and 810 ILCS 5/4-208(a)(1) (“Presentment warranties. (a) If an unaccepted draft is presented to the drawee for payment or acceptance and the drawee pays or accepts the draft, (i) the person obtaining payment or acceptance, at the time of presentment, and (ii) a previous transferor of the draft, at the time of transfer, warrant to the drawee making payment or accepting the draft in good faith that: (1) the warrantor is or was, at the time the warrantor transferred the draft, a person entitled to enforce the draft or authorized to obtain payment or acceptance of the draft on behalf of a person entitled to enforce the draft. . . .”)
  • UCC § 3-417 cmt. 2 (“Subsection (a)(1) in effect is a warranty that there are no unauthorized or missing indorsements.”)