We have a checking account for a customer who recently passed away. We became aware of the death a month after it occurred. There are two beneficiaries on the account: the deceased customer’s adult son and the daughter of his second wife, who is a minor. There is a dispute between the beneficiaries’ families, and we are trying to protect the bank from liability. How do we handle distribution to the minor? Is the minor’s mother required to be appointed as guardian of her property? If we have to wait for court documents, do we have to wait to disburse the other half of the funds to the adult son? Additionally, there are ACH debit transactions that posted after the customer’s death. These transactions are consistent with patterns on the account when the customer was alive, but we are not sure whether the transactions belong to the deceased customer or his adult son, as they both have the same name.

We believe that if the designated beneficiaries are making conflicting claims as to the relevant payable on death (POD) account, your institution should utilize the protections available under the Illinois Trust and Payable on Death Accounts Act and refuse to distribute the account proceeds until the beneficiaries provide a court order directing distributions from the account.

When presented with conflicting claims to a POD account, the Illinois Trust and Payable on Death Accounts Act allows institutions to refuse to distribute the proceeds of a POD account, without liability to any beneficiary or other party, until it receives a determination of ownership by a court of appropriate jurisdiction.

Regarding distributions to minors, the Illinois Probate Act allows institutions to deliver funds in a deceased customer’s account to a minor beneficiary’s parent if they provide the bank with a small estate affidavit signed by the parent stating that (1) the minor’s estate does not exceed $10,000, (2) no representative has been appointed for the minor’s estate, and (3) the affiant is the minor’s parent. When presented with an affidavit containing these statements, the Probate Act permits “any person or corporation . . . holding personal estate” of a minor to “deliver the personal estate to the affiant.” After delivering the payment, an institution is released to the same extent as if the payment had been made to the minor’s legally qualified representative.

As for the timing of distribution to the adult son, the Illinois Trust and Payable on Death Accounts Act does not require an institution to distribute account funds until it receives legal evidence of the account holder’s death, identification from each beneficiary then living, and written direction from each beneficiary to close the account and distribute the proceeds in a form acceptable to the institution. Accordingly, your institution is not required to distribute account funds until both beneficiaries meet these requirements. And as previously mentioned, in the event of conflicting claims, an institution may refuse to distribute account proceeds until it receives a determination of ownership by a court of appropriate jurisdiction.

As to the ACH transactions that occurred after the deceased customer’s death, we recommend returning any future ACH debits (using return reason code R15). Under the Illinois Trust and Payable on Death Accounts Act, POD account beneficiaries become the account owners “upon the death of the last surviving holder of the account.” Because the account no longer belongs to the deceased account holder’s estate after his death, we recommend returning future ACH debits (whether in the deceased customer’s name or his son’s name), to ensure that you can distribute the full account funds to the POD beneficiaries.

For resources related to our guidance, please see:

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. If the institution, in its discretion, is unable to identify one or more beneficiaries, or cannot determine the lawful existence of any beneficiary, or cannot determine a party authorized to collect on behalf of any beneficiary, or if conflicting claims to the account are made by the beneficiaries or other interested parties, then the institution may refuse to distribute the proceeds, without liability to any beneficiary or other party, until the institution receives a determination of ownership by a court of appropriate jurisdiction.”)

Illinois Probate Act, 755 ILCS 5/25-2 (“When appointment of representative of ward unnecessary. Upon receiving an affidavit that the personal estate of a ward does not exceed $10,000 in value, that no representative has been appointed for his estate and that the affiant is a parent or a person standing in loco parentis to the minor . . . any person or corporation indebted to or holding personal estate of the ward may pay the amount of the indebtedness or deliver the personal estate to the affiant. In the same manner and upon like proof, any person or corporation having the responsibility for the issuance or transfer of stocks, bonds or other personal estate may issue or transfer the stocks, bonds or other personal estate to or in the name of the affiant. Upon the payment, delivery, transfer or issuance pursuant to the affidavit, the person or corporation is released to the same extent as if the payment, delivery, transfer or issuance had been made to the legally qualified representative of the ward and is not required to see to the application or disposition of the property.”)

Illinois Probate Act, 755 ILCS 5/1-2.17 (“‘Ward’ includes a minor or a person with a disability.”)

Illinois Probate Act, 755 ILCS 5/11-1 (“‘Minor’ means a person who has not attained the age of 18 years. A person who has attained the age of 18 years is of legal age for all purposes except as otherwise provided in the Illinois Uniform Transfers to Minors Act.”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/4(c) (“Upon the death of the last surviving holder of the account, the beneficiary designated to be the owner of the account . . . shall be the sole owner of the account, unless more than one beneficiary is so designated and then living or in existence, in which case those beneficiaries shall hold the account in equal shares as tenants in common with no right of survivorship as between those beneficiaries. If no beneficiary designated as the owner of the account on the death of the last surviving holder is then living or in existence, the proceeds shall vest in the estate of the last surviving holder of the account.”)

Illinois Trust and Payable on Death Accounts Act, 205 ILCS 625/4 (“If one or more persons opening or holding an account sign an agreement with the institution providing that on the death of the last surviving person designated as holder the account shall be paid to or held by one or more designated beneficiaries, the account, and any balance therein which exists from time to time, shall be held as a payment on death account and unless otherwise agreed in writing between the person or persons opening or holding the account and the institution: . . . .”)

NACHA Operating Guidelines, Chapter 18, Returns for Death of Beneficiary, Representative Payee, or Account Holder (2021) (“Entries may be returned by the RDFI if the RDFI has become aware of the death of the beneficiary, representative payee, or account holder. . . .”)