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Deceased Member Issues (New Jersey)

Last Reviewed: February, 2020

In the event of a member's death, a credit union must determine the proper disposition of the remaining funds in the member's account(s). A joint account owner, family member, executor, administrator or other person will most likely make a claim for funds in the decedent's accounts. No representation should be made to members or their survivors as to who actually has legal ownership of the funds.

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Deceased Member Issues (New Jersey): Summary

The credit union must protect against unauthorized account access and not disclose any non-public information about the deceased member without proper documentation.

An executor is someone named in a will to carry out the instructions contained in a will.

An administrator is someone appointed by a court to manage the estate of a deceased person who died without a will, or intestate.

A credit union ultimately is indebted to the member's estate in the amount of the deposited funds and the credit union is bound to see that payment is made to the duly appointed legal representative of the deceased member. The credit union must evaluate each situation to determine what steps should be taken. Share drafts to deceased payees are subject to special rules, particularly government checks, and can generate losses if not handled properly.

The credit union should make the following determinations before releasing any funds:

  1. That the claimant has verified, valid documentation showing proof of death.
  2. That the claimant has a legal right to the funds in the account.
  3. That the credit union has no claim of its own to the funds.

CREDIT UNION CLAIMS

Once the credit union becomes aware of a member's death, it needs to determine whether the deceased individual owes it any money. If the member has no obligations to the credit union, then the credit union is left with the issue of what person gets the money. If the deceased was indebted to the credit union, then the matter becomes much more complicated. As a starting point, keep in mind that only the debtor and others who signed the obligation will be indebted to the credit union, and joint owners may or may not fall into these categories.

If the member dies and the account has no listed joint owners, then the account will likely be property of the deceased person's estate. Since the estate is also indebted on the loan, the credit union will be in a position where it should be able to offset a claim against an asset of the estate; and as a practical matter, the matter should be relatively easily negotiated with the personal representative of the estate. Note that if the debt is secured by real estate, the credit union will likely have given up any right of setoff, and federal law will not allow the acceleration of the debt if it is otherwise not in default. Passage of title upon death is an exception to the general right to accelerate real estate loans when there has been a transfer of ownership. The credit union should be able to avoid a loss if it isn't under-secured, but its attorney may have to work out the specifics.

On some loans, the credit union may have taken a pledge of funds as security. To the extent that such a pledge actually resulted in access to the funds being restricted at the time the loan was granted, commonly referred to as perfecting the lien, then the credit union should have clear access to the funds. The same will likely be true if, prior to the death, the credit union had, due to default by the member, restricted access to the funds (and can show evidence of doing so in the particular case and can show that such was a general practice). It's rare that the latter should be the case; if there's been a default and the credit union wants recourse to the member's funds, it should accelerate the debt and apply the savings to the defaulted loan at that time and bill the member for the full remaining loan balance. (Credit unions would be well advised to avoid the halfway measure of just freezing funds when loans go past due.) Keep in mind that setoffs for credit card debts are prohibited in most circumstances.

The real challenge will come in situations where (1) the member is indebted to the credit union, (2) the account has a joint owner, and (3) access to the account was not restricted prior to the death. The loan will likely not be in default, at least at the time of death, and if an owner had made a withdrawal request five minutes prior to death, the credit union would have honored it. The problem is that title will have passed to the joint owner at the time of death by operation of law. The result is that the loan is an obligation of the estate whereas the estate has no rights in the account; it is the property of someone else. Since the owner of the account is not obligated on the debt, there won't be the mutuality of obligation necessary for setoff, and the courts will favor the current owner's claim to the funds over any claim of the credit union. It may be that the new owner will consent to the credit union having the money, either to eliminate a claim against the estate or because he/she won't feel entitled to a windfall while the credit union is taking a loss. But not everyone will see it that way. Default on death clauses will not avoid the problem, since passage of title to accounts upon death is immediate but the restricting of funds of the creation of evidence of such is not immediate and automatic. If a large enough amount of money is involved and especially if the credit union fears that the estate may be insolvent, it should contact its attorney.

In all cases where the deceased is indebted to the credit union, it should file a claim against the estate. This will ensure that rights don't lapse by operation of law and may increase the chances that the credit union will be paid by someone.

Who do the funds belong to upon death?

Individual/Single Membership Account: One owner.
If an estate is probated, an executor or administrator is appointed by the court and will have Letters Testamentary (where a will appoints an executor) or Letters of Administration (no will or no executor) to verify the appointment. The executor or administrator is legally entitled to collect all solely-owned funds. Release of solely-owned funds to the executor or administrator, acting in that capacity, releases the credit union from further liability. The credit union should make any checks payable to the "estate." If it is the policy of the credit union, the credit union might retain a certified copy of the executor's or administrator's Letters Testamentary or Letters of Administration for its files.

Joint Accounts with rights of survivorship: Two or more owners.
These are authorized by the Federal Credit Union Act. A credit union may accept an account from two or more persons as joint tenants (joint owners). Each of the owners has an undivided interest in the account and has the right to withdraw any part or all of the funds in the account. Upon the death of one owner, the balance in the account automatically passes by law to the survivor. It is important to specify on the passbook and signature card or account agreement that the account is a joint account or it may be presumed to be a tenancy-in-common. This can be accomplished by stating after the names of the owners that this account is a joint account, subject to withdrawal by either or the survivor.

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Deceased Member Issues (New Jersey): Additional State Considerations

Right of Survivorship on Joint Accounts

Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent, unless there is clear and convincing evidence of a different intention at the time the account is created. N.J.S.A. 17:16I-5(a). In other cases, the death of any party to a multiple-party account has no effect on beneficial ownership of the account other than to transfer the rights of the decedent as part of his estate. N.J.S.A. 17:16I-5(d).

Transfer of Accounts: Probate Court Order

When a deceased member does not have any other owner on his account and there are no beneficiaries designated on the account, funds in the deceased member’s account become property of the estate of the deceased member. Anyone presenting themselves as the “survivor” of the deceased who believes they are entitled to funds in the account must first present proper documentation from probate court, such as letters of administration or letters testamentary, before the credit union can issue a check to the deceased member’s estate.

Collecting Outstanding Obligations

In order for a creditor’s claim against a decedent’s estate to be considered for payment, creditors of the decedent shall present their claims to the personal representative of the decedent's estate in writing and under oath, specifying the amount claimed and the particulars of the claim, within nine months from the date of the decedent's death. If a claim is not so presented to the personal representative within nine months from the date of the decedent's death, the personal representative shall not be liable to the creditor with respect to any assets which the personal representative may have delivered or paid in satisfaction of any lawful claims, devises or distributive shares, before the presentation of the claim. N.J.S.A. 3B:22-4.

If the applicable assets of the estate are insufficient to pay all claims in full, the personal representative shall make payment in the following order:

  1. Reasonable funeral expenses;
  2. Costs and expenses of administration;
  3. Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;
  4. Debts and taxes with preference under federal law or the laws of this State;
  5. Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;
  6. Judgments entered against the decedent according to the priorities of their entries respectively; All other claims. N.J.S.A. 3B:22-2.

Additionally, a credit union shall have a right of immediate setoff against the balances of the share and deposit accounts of each member for any amounts due from the member to the credit union. N.J.S.A. 17:13-73.4.

Outstanding Mortgages

The Garn-St. Germain Depository Institutions Regulation Act allows lenders to enforce due-on-sale clauses in mortgage agreements and to demand payment in full on the mortgage when the title to a property changes ownership. However, one relevant exception when a lender cannot enforce the due-on-sale clause is when title is transferred by inheritance to a relative.

The Consumer Financial Protection Bureau issued an interpretive rule to clarify that when a borrower dies, a credit union may add the name of the borrower’s heir as an obligor on the mortgage loan without the credit union having to adhere to the ability to repay requirements under Regulation Z. This allows heirs an opportunity to work with the credit union to pay off a loan or seek a loan modification.

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Deceased Member Issues (New Jersey): Checklist

(To be in substantial compliance, all answers should be "Yes" unless they are not applicable.)

Proof of Death:

  1. Does the credit union obtain a certified copy of the death certificate of a deceased member?

Legal Right to Funds:

  1. Does the credit union avoid making any representation to members or their survivors as to who actually has legal ownership of the funds should the member die?
     
  2. Does the credit union obtain and retain a certified copy of the executor's or administrator's letters testamentary or letters administration for its files?

Multiple Party Accounts WITHOUT Right of Survivorship:

  1. If there is an unequal ownership of funds among co-tenant account owners, does the credit union have a statement in its signature card or deposit agreement that establishes the deceased owner's portion of the account?
     
  2. If there is no proof of the deceased owner's unequal portion, does the credit union disburse funds to the surviving owner and to the executor or administrator owner on an equal basis?
     
  3. Does the credit union require proof of death of the last surviving owner or proof that there is no right of survivorship before paying deposits to the owner's principal representative or heirs?
     
  4. Does the credit union release to the executor or administrator of the estate that portion of the decedent's account representing his contributions?

Multiple Party Accounts WITH Right of Survivorship:

  1. When one owner dies, does the credit union automatically make the other owner entitled to the funds?
     
  2. If the decedent is the last surviving owner of the account, does the credit union turn over the funds to the executor or administrator?
     
  3. Does the credit union continue to make any sums of a joint account available to the other parties after the death of one party?
     
  4. Does the credit union follow a party's written instructions regarding disposition of funds in contradiction of the account agreement?

Testamentary Revocable Trust Accounts:

  1. Upon the death of the trustees, does the credit union pay any sums remaining on deposit to the beneficiaries or survivors of the beneficiaries?

Payable on Death (P.O.D. Accounts):

  1. Does the credit union automatically pay the P.O.D. beneficiary upon the death of the owner?
     
  2. In multiple party P.O.D. accounts, does the credit union make sure it does not pay any P.O.D. beneficiary until all joint owners die?
     
  3. Is the credit union careful not to pay the executor or administrator of the decedent account owner's estate?
     
  4. Does the credit union pay multiple P.O.D. beneficiaries equally unless the decedent left other instructions?

Trust Account with Written Trust Agreement:

  1. If the trustee dies, does the credit union make sure that the successor trustee is properly authorized?
     
  2. If a trust agreement does not appoint a successor to a trustee, does the credit union obtain a copy of the court order appointing the successor trustee?
     
  3. When there is more than one co-trustee signature required for withdrawal, does the credit union obtain the certificate of the deceased trustee before allowing the surviving trustee to make withdrawals?

Credit Union Claims:

  1. Does the credit union verify that it has no remaining claims, such as a pledge on a loan or an outstanding share draft, before releasing the funds in a decedent's account?
     
  2. If the credit union faces losses on a defaulted loan that cannot be offset by funds on deposit, does the credit union consider filing a claim against the estate before the deadline is set by the probate court?

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Deceased Member Issues (New Jersey): FAQs

Note: These FAQs contain references to "primary" and "joint" owners. Contractually speaking, all owners are equal. However, for purposes of these FAQs, the term "primary owner" refers to the person who originally established the account, and the term "joint owner" refers to the person who was added to the account either at the time the account was opened or later.

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Deceased Member Issues (New Jersey): Laws & Regulations

Additional Laws & Regulations

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