IBA Compliance Connection

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Topic: Death of a Customer

We had a customer die who held multiple joint accounts with his wife (who is still alive), containing assets in excess of $100,000. The customer also has a savings account in his name only that does not include any beneficiaries. The value of the savings account is less than $100,000. Is a small estate affidavit required for the widow to close the account, or is this unnecessary when a spouse is closing a deceased spouse’s account? What documentation do we need to close the account?

Apr 30, 2019

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It depends. When a surviving spouse does not have an ownership interest in their deceased spouse’s account, the surviving spouse should not be permitted to close the account without the proper authority to do so. Such authority may come from a small estate affidavit or from a will or court document appointing the surviving spouse…
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?

Apr 29, 2019

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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…
The daughter of a deceased customer has presented a small estate affidavit and a will naming her as the executor. The deceased customer was receiving monthly checks as part of a personal injury claim settlement that are supposed to continue for the next twelve months. The daughter would like to withdraw the funds in the account but keep the account open so that it may continue to receive the monthly checks. Can we allow the daughter to make a partial withdrawal from the account while keeping the account open for these deposits?

Apr 22, 2019

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Provided the combined future monthly settlement payments together with all other estate assets do not exceed $100,000, we believe your bank may rely on the small estate affidavit and honor withdrawals made from the decedent’s account by the executor of the small estate (the affiant). In our view, whether your bank should keep the decedent’s…
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?

Mar 28, 2019

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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…
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?

Mar 25, 2019

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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…
When a customer receiving automatic electronic social security payments dies, we know we need to return any payment received after the customer’s death. Does the same rule apply for representative payee accounts? Do we need to return any automatic social security payments made to the representative payee account after the account beneficiary dies?

Jan 16, 2019

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Yes, social security benefits paid to a representative payee account on behalf of a beneficiary must be returned after the beneficiary’s death. The regulations governing reclamation of federal benefit payments require banks to return all federal benefit payments received after learning of a beneficiary’s death, whether the payments are made directly to a beneficiary or…
We have a deceased customer who had an IRA with her three sons named as beneficiaries. We need to open inherited IRAs for the sons, one of whom is incarcerated. Our Customer Identification Program (CIP) requires a primary and secondary form of identification. What steps do we need to take to verify the identity of an incarcerated individual? We were able to pull up a photograph of the incarcerated son on the Department of Corrections website using his inmate identification number. What more should we do? Our CIP does not cover this situation.

Dec 12, 2018

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We believe you may rely on the information posted on the Illinois Department of Corrections’ (IDOC) website, which is drawn from government records on file with the IDOC, for one form of government-issued identification for purposes of your customer identification program (CIP). Since your CIP policy requires two forms of government-issued identification, you may wish…
A customer held a joint account with her mother, who was receiving Social Security benefits. The mother died one year ago, but the daughter did not notify us and continued to withdraw her mother’s benefit payments from the account, and there are no funds remaining in the account. We eventually received a reclamation letter from the Treasury demanding $10,000. What legal recourse do we have against the daughter? Should we file a police report and a SAR?

Nov 26, 2018

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Your bank would be within its rights to file a police report and SAR, as the collection of benefit payments after a relative’s death is a federal crime. Also, the Social Security Administration provides a hotline for reporting Social Security fraud, and we are providing a link with the reporting information below. We do recommend…
We have a loan that was charged off approximately thirty years ago. The bank never foreclosed on the property and the has borrower passed away. The borrower’s estate was not probated, and two of his four children were unwilling to quitclaim the property to the bank. We have been paying the taxes on the property and receive crop income from the person who leases and farms the property. All crop income received has been held in a separate escrow account, and we have used the bank’s own funds to pay the property taxes. What can we do with the escrowed income?

Nov 20, 2018

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We strongly recommend reviewing the loan documents with bank counsel to determine if the bank has a right of setoff in the crop income, based on the terms of those loan documents. The statute of limitations for enforcing a promissory note in court is ten years from the date a default occurred. However, each subsequent…
In the new Illinois unclaimed property law, the section regarding tax-deferred retirement accounts references a particular date: “one year after the date of mandatory distribution following death if the Internal Revenue Code requires distribution to avoid a tax penalty to the holder. . . .” What is that date?

Oct 15, 2018

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Our understanding is that the “date” referenced in that section is the date on which the deceased owner’s beneficiaries must take their first distribution from the IRA — whether the distribution is a full distribution of the account or the first of many periodic requirement minimum distributions (RMDs). The Illinois Revised Uniform Unclaimed Property Act…