Topic: Death of a Customer
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We originated a HELOC secured by the borrower’s primary residence. The same borrower also has an unsecured line of credit with us. The borrower recently passed away, and his home is being sold. We know that we can use the proceeds of the sale to pay off the HELOC, but can we also use the sale proceeds to pay off the unsecured line of credit? The unsecured line of credit agreement does not contain any setoff provisions, and the HELOC agreement does not contain a cross-collateralization clause. Also, while we already include cross-collateralization clauses in secured commercial loans, can we add these provisions to all secured consumer loans going forward? Would such a clause permit us to use the collateral to cover future unsecured loans?
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No, we do not believe that you can use the proceeds of the home sale to pay off the unsecured line of credit. However, you may have a right of setoff with respect to accounts or other monies the customer has at your bank. We note, though, that our guidance is based on your reading…
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We have a customer who would like to name a trust as the payable on death (POD) beneficiary on her individual certificate of deposit (CD). Does Illinois law allow this?
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Yes, a trust may be added as a beneficiary to a CD account. Under Illinois law, an account becomes a “payable on death” account when the accountholder signs an agreement providing that on the accountholder’s death, the account will be paid to or held by a designated beneficiary. The law defines the term “account” to…
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We typically allow parents to open joint accounts with their minor children by having the parent sign the account agreement for both the child and the parent. Does the parent’s signature on behalf of the child create a right of survivorship for the child under the Joint Tenancy Act?
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We cannot confirm that a parent’s signature on behalf of a minor child would create a right of survivorship. Under the Joint Tenancy Act, a right of survivorship in a joint deposit account may be established only when all account owners sign an agreement to that effect. It is conceivable that a court would view…
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We have a customer whose account statements keep being returned as undeliverable. The executor of the customer’s estate has notified us that the customer passed away, but so far has not requested any documents from us. Can we stop sending out the account statements? Also, we have another customer whom we strongly believe passed away; although we have no notice of his death, his statements also are being returned as undeliverable. Can we stop sending out those statements, too?
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Yes, your bank may discontinue mailing out the account statements for both customers. You are not required to continue mailing periodic statements when they repeatedly are being returned as undeliverable. In fact, it is advisable to discontinue mailing periodic statements to a customer that you know or believe is dead or to an address that…
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A grandma opened an account with her minor grandchild. The account agreement creates a joint account with a right of survivorship. However, the child did not sign the account agreement. The grandma signed in her own name and on behalf of the child. We used both the child’s social security number and the grandma’s to open the account. We do not have any evidence or documentation that the grandma is the child’s legal guardian. The child never has transacted on the account, and the grandma has passed away. Is this account now part of the grandma’s estate?
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We recommend consulting with bank counsel regarding the ownership of the account, but in our view, a joint tenancy never was created, so the account passed to the estate of the grandma upon her death. The Illinois Banking Act permits banks to establish deposit accounts for minors with the same terms as if the minor…
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Under Uniform Commercial Code (UCC) Section 4-405, my understanding is that a bank is not required to restrict a deceased customer’s account until the bank “knows of the fact of death.” What constitutes knowledge? Does it have to be from a government source, or would an obituary or church bulletin count, or even attending a funeral? Also, Section 4-405 permits us to pay or certify “checks drawn on or before” the date of death for 10 days after the date of death. Is that referring to checks written by the deceased customer or checks made payable to the deceased customer?
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For UCC purposes, “knowledge” is actual knowledge of the customer’s death. The UCC and accompanying official comments do not define “actual knowledge.” We believe that obituaries, church bulletins and funerals all would constitute reliable knowledge of a customer’s death and should be treated as conferring actual knowledge. The provision in UCC Section 4-405(b) — permitting…
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A safe deposit box customer recently died. His sister is executor of his estate. She has asked us for the date on which the customer added a joint owner to the box (his fiancée). There seem to be bad feelings between the sister and the deceased customer’s fiancée. Can we provide that information? Our safe deposit account agreement treats boxes with multiple lessees as joint tenancies with rights of survivorship, so we took the position that we could not provide this information because the fiancée now is the sole lessee on the box.
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We believe that you may provide the requested information to your customer’s executor, since she is requesting information about an event that occurred before his death. The executor would not have any right to information about the safe deposit box account after the date of death. The federal privacy regulations permit banks to disclose account…
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We have a payable on death (POD) account with four adult beneficiaries. After the account owner died, but before we could distribute the account funds, one of the beneficiaries died. The surviving beneficiaries are insisting that we split the account balance among them, without paying a portion to the estate of the deceased beneficiary. Is that right? Our account agreement expressly provides that the POD beneficiaries take as tenants in common.
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We believe that the POD account funds should be split four ways among the named beneficiaries who were living when the account owner died, including the deceased beneficiary. The Illinois Trust and Payable on Death Accounts Act (“POD Act”) requires depository institutions to distribute POD account funds to beneficiaries as tenants in common with equal…
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Our mortgage escrow department issued a $1,300 check for homeowners insurance that has not been deposited by the insurance company. The house securing the mortgage loan was sold about one month after the check was issued, but we do not know whether all or a portion of the check amount is refundable due to the sale of the house. The borrower has since died, and his son and daughter have asked us to issue a check to them for the $1,300 amount. What should we do?
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We recommend contacting the insurance company to inquire about the status of the check and to determine what amount of the check is refundable to your former borrower’s estate. In any event, if the loan has remained current and there is a surplus of over $50 in the mortgage loan escrow account, that surplus should…