A deceased customer named their daughter as the payable on death (POD) beneficiary for two certificates of deposit (CDs). We have the daughter’s name, but not her contact information or social security number, and the CDs are continuing to earn interest. We have been cutting interest checks in the name of the deceased customer and holding them. Instead of cutting these checks, can we capitalize the interest on the CDs, and can we deposit the interest checks we have already issued into the principal balance of the CDs?

No, we do not recommend capitalizing the interest on the CDs and unilaterally depositing the interest checks that have been issued into the principal balance of the CDs, unless the CDs’ account agreements expressly grant you this authority. If you have not been granted this authority, we believe you should continue holding the CDs and any associated interest checks until the daughter claims them, or you are required to report them as abandoned under the Illinois Revised Uniform Unclaimed Property Act (RUUPA).

Under the Illinois Trust and Payable on Death Accounts Act, a POD beneficiary becomes the sole owner of an account (including a CD) upon the death of the last surviving holder of the account. The Act requires banks to distribute the account proceeds to the designated beneficiary once they have met three requirements: to provide legal evidence of the holder’s death, their identification, and written direction to close the account and distribute the proceeds. Together, these provisions suggest that when a POD account owner dies, the account funds immediately become the property of the POD beneficiary.

Consequently, we believe the daughter became the sole owner of the CDs when your customer died, and any checks for CD interest payments following your customer’s death should have been made payable to her rather than your deceased customer. Since you have not received written direction from the daughter to close the account and distribute the proceeds, we believe you should continue holding the CDs and interest checks until the daughter claims them or you are required to report them as abandoned under the Illinois RUUPA.

Further, we note that depositing the interest checks without the daughter’s consent or endorsement could put your bank at risk of liability for conversion. Illinois courts have stated that banks can be liable for conversion when they assume control, dominion, or ownership over a customer’s funds wrongfully and without authorization. Additionally, if you choose to deposit the interest checks and then later refuse to pay them if presented by the daughter, you could risk a wrongful dishonor claim under the Illinois Uniform Commercial Code for your bank’s failure to pay a properly payable item.

For resources related to our guidance, please see:

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 625/4(c) (“Upon the death of the last surviving holder of the account, the beneficiary designated to be the owner of the account . . . who is then living . . . 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.”)

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 RUUPA, 765 ILCS 1026/15-201(6) (“When property presumed abandoned. Subject to Section 15-210, the following property is presumed abandoned if it is unclaimed by the apparent owner during the period specified below: . . . (iii) a time deposit for which the owner has not consented to automatic renewal of the time deposit, 3 years after the later of maturity or the date of the last indication of interest in the property by the apparent owner; (iv) an automatically renewable time deposit for which the owner consented to the automatic renewal in a record on file with the holder, 3 years after the date of last indication of interest in the property by the apparent owner, following the completion of the initial term of the time deposit and one automatic renewal term of the time deposit.”)

Cruthis v. Firstar Bank, N.A., 354 Ill.App.3d 1122, 1131–32 (5th Dist. 2004) (“Conversion is an unauthorized act that deprives a person of his property permanently or for an indefinite time. . . . To prove the tort of conversion, ‘a plaintiff must establish that (1) he has a right to the property; (2) he has an absolute and unconditional right to the immediate possession of the property; (3) he made a demand for possession; and (4) the defendant wrongfully and without authorization assumed control, dominion, or ownership over the property.’ Illinois courts have sustained a plaintiff’s cause of action for conversion against his or her bank.”)

Illinois UCC, 810 ILCS 5/4-402(a) (“Except as otherwise provided in this Article, a payor bank wrongfully dishonors an item if it dishonors an item that is properly payable, but a bank may dishonor an item that would create an overdraft unless it had agreed to pay the overdraft.”)

Illinois UCC, 810 ILCS 5/4-402(b) (“A payor bank is liable to its customer for damages proximately caused by the wrongful dishonor of an item.”)