Topic: Payable on Death Accounts
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A customer with a payable on death (POD) checking account has died, and we have not yet closed the account. The POD beneficiary is waiting to receive insurance checks for storm damage to the deceased customer’s home that occurred while she was still alive. The insurance company said that the checks will be made payable to the deceased customer. Can the POD beneficiary deposit these checks into the POD account once she receives them, or will she need to provide us with a small estate affidavit?
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No, we do not believe that the beneficiary — and now owner — of a POD account may deposit checks made payable to the prior owner, and we do not believe a small estate affidavit would protect you from potential liability. Under the Illinois Trust and Payable on Death Accounts Act, unless otherwise agreed, the…
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We issued a certificate of deposit (CD) to two joint owners with a right of survivorship. One of the owners has died, and the surviving owner would like to cash in the CD but has questioned the early withdrawal penalty. Is there any guidance on whether banks can charge early withdrawal penalties in such cases, or is this a matter of bank discretion? We have decided to waive the early withdrawal penalty in cases where there is a single owner with a payable on death provision.
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We are not aware of any guidance on charging early withdrawal penalties after a joint owner of a CD has died and the surviving owner wishes to cash it in. Whether you waive an early withdrawal penalty in this situation is a matter of bank discretion. Early withdrawal penalties for CDs are required by Regulation…
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A customer requested a change of beneficiary for a payable on death (POD) account, and we mailed them a change in beneficiary form. Before we received the completed form, the customer died. A day later, we received in the mail the customer’s completed form designating a new beneficiary for the account. Who is the rightful beneficiary, the one in our system or the one on the form?
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Whether you have the authority to accept the change in beneficiary form depends on whether your bank knew of the POD account holder’s death before receiving the form. Also, if different beneficiaries are making conflicting claims to a POD account, your bank may wish to take advantage of an Illinois law that authorizes you to…
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Our bank underpaid a check issued by a customer due to an encoding error, and the collecting bank has sent us a Federal Reserve adjustment to collect the remaining amount. However, in the time between paying the check and receiving the adjustment, our customer (the payor) died. The customer’s account was payable on death (POD), so we distributed the funds to the designated beneficiary and closed the account. The POD beneficiary then used the funds to open a new deposit account at our bank. Can we use funds from the beneficiary’s deposit account to pay the remaining amount?
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No, we do not believe you may charge the beneficiary’s account to cover the underpayment, as the funds in that account belong to the beneficiary, and the beneficiary did not authorize your deceased customer’s check. Under the Illinois Trust and Payable on Death Accounts Act, a POD beneficiary becomes the sole owner of a POD…
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We have a customer who is a designated beneficiary (but not an “eligible designated beneficiary”) of an inherited IRA. The IRA owner was the customer’s father, who died in 2020 after taking his required minimum distribution (RMD) for 2020. Our understanding was that under the 2021 IRA rules, our customer had ten years to empty the inherited IRA — either by taking annual distributions or a lump sum before the ten-year deadline. However, we recently viewed a webinar indicating that when an IRA owner dies in 2020 (or later) after reaching their required beginning date for taking RMDs, their designated beneficiary must take annual distributions and cannot wait to take a lump sum. Will our customer be penalized for not taking an annual distribution in 2021, and must they begin taking annual distributions in 2022?
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No, we do not believe your customer will be penalized for not taking a distribution in 2021 or be required to begin taking annual distributions in 2022. We do not believe that the IRS’s IRA rules require designated beneficiaries to take annual distributions from inherited IRAs. IRS Publication 509-B for use in preparing 2021 returns…
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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?
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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…
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Can a trust open a payable on death (POD) account? We are concerned that a POD designation could conflict with the provisions of the trust agreement.
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While Illinois law does not expressly prohibit trusts from opening POD accounts, we do not recommend permitting a trust to establish a POD account. A trust would not trigger the POD provisions because a trust is an entity that does not die, even if its settlor dies, and, as you noted, the POD designation could…
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A deceased customer’s non-spouse IRA beneficiary came into our bank to close out the IRA. On request, we cut a check to the beneficiary and coded it as a death distribution in our system. The beneficiary’s bank had misinformed them that they should obtain and deposit the check to roll the funds over into a beneficiary IRA account and the beneficiary’s bank, which they did. This bank now realizes that it should have done a trustee-to-trustee transfer of the funds. It wants to send us transfer papers and have us change the coding in our system from a death distribution to a trustee-to-trustee transfer to avoid us issuing a form 1099-R reflecting the death distribution, which would result in a sizeable tax burden for the beneficiary. Can we make this change if the other bank agrees to sign a hold harmless agreement protecting our bank?
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No, we do not recommend signing the transfer papers or changing the coding in your system. We also caution that a hold harmless agreement might not protect you from potential IRS penalties if you purport to make a trustee-to-trustee transfer of the IRA funds after making a death distribution to the beneficiary. We spoke with…
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A will provides that any share of the decedent’s estate distributable to a descendent who has not reached the age of 21 years may be distributed to a custodian for the descendant under any Uniform Transfers to Minors Act (UTMA). Can we open an Illinois UTMA account for a 19-year-old?
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Yes, we believe that you may open an Illinois UTMA account for a 19-year-old when the account has been created by a fiduciary acting under the authority of a will, since the Illinois UTMA provides that the custodianship will not terminate until the minor turns 21. Section 6 of the Illinois UTMA covers transfers made…
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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.
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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…