Deceased Member Issues (New Jersey)

Last Reviewed: December 2022

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 of authority from the person requesting the information..

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:

That the claimant has verified, valid documentation showing proof of death.
That the claimant has a legal right to the funds in the account.
That the credit union has no claim of its own to the funds.
Is the account individually-owned?
1. See Individual Account section
Is the account owned jointly with one or more individuals?
1. See Joint Account section
Are there any beneficiaries (ITF) on the account?
1. See Trust Account section

Print Debts and Obligations

Deceased Member Issues (New Jersey): Debts and Obligations

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 the estate 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.

Collecting Outstanding Obligations

In all cases where the deceased is indebted to the credit union, file a claim against the estate:

To insure that your rights don’t lapse; and
To increase the possibility that the credit union will be paid by someone

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:

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

Only the debtor and others who signed the credit obligation are indebted to the credit union. Joint owners may or may not fall into this category.

If Decedent had a loan with the credit union and Decedent had purchased Credit Life Insurance, file a claim.

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.

Credit Cards:

Credit card setoffs are generally prohibited, unless the credit card is secured with shares. Ensure your documentation is complete and concise. For a security interest to qualify for the exception under Regulation Z (1026.12(d)(2), the following conditions must be met:

The consumer must be aware that granting a security interest is a condition for the credit card account (or for more favorable account terms) and must specifically intend to grant a security interest in a deposit account.
With respect to a credit card account other than a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61, indicia of the consumer’s awareness and intent to grant a security interest in a deposit account include at least one of the following (or a substantially similar procedure that evidences the consumer’s awareness and intent):
1. Separate signature or initials on the agreement indicating that a security interest is being given.
2. Placement of the security agreement on a separate page, or otherwise separating the security interest provisions from other contract and disclosure provisions.
3. Reference to a specific amount of deposited funds or to a specific deposit account number.
With respect to a covered separate credit feature accessible by a hybrid prepaid-credit card as defined in § 1026.61, in order for a consumer to show awareness and intent to grant a security interest in a deposit account, including a prepaid account, all of the following conditions must be met:
1. In addition to being disclosed in the issuer’s account-opening disclosures under § 1026.6, the security agreement must be provided to the consumer in a document separate from the deposit account agreement and the credit card account agreement;
2. The separate document setting forth the security agreement must be signed by the consumer;
3. The separate document setting forth the security agreement must refer to the deposit account number and to a specific amount of funds in the deposit account in which the card issuer is taking a security interest and these two elements of the document must be separately signed or initialed by the consumer;
4. The separate document setting forth the security agreement must specifically enumerate the conditions under which the card issuer will enforce the security interest and each of those conditions must be separately signed or initialed by the consumer.
The security interest must be obtainable and enforceable by creditors generally. If other creditors could not obtain a security interest in the consumer's deposit accounts to the same extent as the card issuer, the security interest is prohibited by § 1026.12(d)(2).

Real Estate Loans:

Examine the mortgage for rights and remedies:

In the loan agreement, is death a condition of default?
Is there a “due-on-sale” clause?
Who is the new property owner? What are his/her intentions?
Foreclosure procedures if delinquent.

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.

For more information on Successor in Interest Rules, see RESPA and TILA Mortgage Servicing Rules.

Other Loans:

If Decedent had a vehicle-secured loan, the lien on the vehicle should not be satisfied until the debt is paid in full. Repossess the vehicle if the loan is delinquent. When the vehicle is sold, file a claim for any deficiency and refund any excess to the estate.

If Decedent had a share-secured loan, as long as the funds were restricted AND a security agreement was executed at the time the loan was granted, the credit union has clear access to the funds.

If there was a co-signer or co-maker on Decedent’s loan, he or she is accountable to repay the debt.

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Deceased Member Issues (New Jersey): Reclamations

Reclamation is a procedure used by the Federal Government to recover benefit payments made through the Automated Clearing House (ACH) to the account of a recipient who died or became legally incapacitated or a beneficiary who died before the date of the payment(s).

The types of payments subject to reclamation are Social Security benefit or disability; Supplemental Security Income (SSI); Black Lung Disability (Dept. of Labor); Military & Coast Guard retirement, including allotments from military retired (DFAS); Worker’s Compensation (FECA); Civil Service annuity; Veterans Administration benefits (VA); Railroad Retirement Board annuity (RRB); DC Pensions; and, any other federal retirement or annuity.

A Receiving Depository Financial Institution (RDFI) is responsible for all benefit payments received after the death or incapacity of a recipient or death of a beneficiary, unless it meets the qualifications for limited liability. The best practice is to return all federal benefit payments that come in after the date of death of the recipient.

Limited Liability:

The RDFI certifies that it did not have actual or constructive knowledge of the recipient’s death or incapacity at the time of the deposit of any post-death benefit payments;
the RDFI returns all post-death benefit payments received after notification of death;
The RDFI responds to Reclamation so that it is received by the Government disbursing office within 60 days from the date of the notice.

Source: U.S. Treasury Green Book

The government’s right to reclaim funds is established in Title 31 of the Code of Federal Regulations, Part 210, Subpart B, Section 210.10(a).

Print Individual Accounts

Deceased Member Issues (New Jersey): Individual Accounts

If the Deposit Account is held individually, no joint owners and no beneficiaries:
Upon receipt of confirmation of death, freeze all decedent accounts
- Share drafts may clear for up to 10 days
Review other relationships with the credit union for any existing loans or other accounts.
Make a note of the date of death on your systems
Has anyone provided the credit union with a short certificate or letters testamentary regarding administration of the decedent’s estate?
- If yes, then you will need to get the L8 form from the estate administrator/executor*
  - If the estate administrator/executor provides the credit union with the L8 form, funds can be disbursed as per the instructions of the administrator/executor payable in a check or wire to the Estate of <Name of Decedent>, <Name of Administrator/Executor>, <Administrator or Executor>. After disbursing the funds, close the account.
  - If no L8 is provided, disburse Inheritance/Estate Taxes payable to New Jersey Inheritance and Estate Tax. Do not disburse any other funds from the account.
- If no short certificate or letters of administration are provided, disburse Inheritance/Estate Taxes payable to New Jersey Inheritance and Estate Tax. Do not disburse any other funds from the account.

*L-8 Form is only for Class A beneficiaries: Surviving spouse; Surviving civil union partner when a decedent’s death is on or after February 19, 2007; Surviving domestic partner when a decedent’s death is on or after July 10, 2004; Child, stepchild, legally adopted child, or issue of any child or legally adopted child (includes a grandchild and a great grandchild but not a step-grandchild or a step great-grandchild); Parent and /or grandparent.

For example, the following people cannot use the L-8 Form (and must file a return to receive waivers):

Sisters and brothers of the decedent;
Sons-in-law or daughters-in-law of the decedent;
Nieces and nephews, aunts and uncles;
Ex-spouses;
Mutually acknowledged children;
Step-grandchildren and charities.

Print Joint Accounts

Deceased Member Issues (New Jersey): Joint Accounts

Obtain Death Certificate and note date of death on the account

Is the account Joint with Rights of Survivorship?
- If yes, freeze 50% of the account. The surviving joint owner(s) are entitled to the funds.
  - Has the surviving joint owner completed an L-8?*
    - If yes, you can release the freeze.
      - Is the surviving joint owner eligible for membership?
        
        If yes, if the surviving joint owner is:
        
        the primary owner - complete an Account Change Card to remove the deceased member from the account
        
        not the primary owner – complete new signature card and open a new account (close the existing account)
        
        If no, then you will need to issue checks to surviving non-member joint owner(s) and close the account (accounts with maturities may remain open until maturity)
    - If no, only 50% of the funds may be made available to the surviving joint owner(s) until an L-8 is completed (accounts with maturities may remain open until maturity)

For example, the following people cannot use the L-8 Form (and must file a return to receive waivers):

Sisters and brothers of the decedent;
Sons-in-law or daughters-in-law of the decedent;
Nieces and nephews, aunts and uncles;
Ex-spouses;
Mutually acknowledged children;
Step-grandchildren and charities.

Print POD/Trust Accounts

Deceased Member Issues (New Jersey): POD/Trust Accounts

Payable on Death (POD)/ In Trust For (ITF):

The owner of the account is the person who opened the account.
Upon death of the Owner(s), the beneficiary is entitled to the funds.
A death certificate is needed and the credit union should follow its procedures for verifying the identity of an individual claiming to be the beneficiary.
Freeze 50% of the assets in the account.
- Has the beneficiary completed an L-8?*
  - If yes, you can release the freeze and disburse funds to the beneficiary
  - If no, only 50% of the funds may be made available to the beneficiary(s) until an L-8 is completed (accounts with maturities may remain open until maturity)

For example, the following people cannot use the L-8 Form (and must file a return to receive waivers):

Sisters and brothers of the decedent;
Sons-in-law or daughters-in-law of the decedent;
Nieces and nephews, aunts and uncles;
Ex-spouses;
Mutually acknowledged children;
Step-grandchildren and charities.

For other trust accounts, consult the trust agreement, and/or consult with counsel, upon the death of one of the parties to the trust.

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Deceased Member Issues (New Jersey): Pre-Planned Burial Accounts

Once in a while a member tells you that he wants to open an account to "pre-pay" burial expenses. Some members will give you a form known as a "burial reserve agreement." This form is usually given to your member by a funeral director. The problem is that the form makes the funeral director, not your member, the account owner. For credit unions, only members can own credit union share accounts. The best way to handle this is for your member to make arrangements for funeral needs in his or her will.

Checklist:

Be wary of "Burial Reserve Agreement."
Burial Reserve Agreements create membership problems.
Pre-planned funerals should be handled with a funeral director.
It is best to make burial arrangements in a will.

Best Practices:

If a member requests a burial reserve account, suggest that the member open a single-name account instead. Then, the member should have a Last Will prepared. The will can instruct the member’s executor to use funds from the account to pay for burial expenses. When the member dies, the executor will be responsible for using the funds properly.
Another alternative to a burial account is for the member to make prepaid burial arrangements with a funeral home. The member can choose the funeral home and select the products and services wanted for burial. This involves the member signing an agreements with the funeral director for burial services. The member will pay the funeral director in a lump sum or installments and in turn, the funeral home must deposit those funds in a trust fund established for prepaid funerals with a banking institution located in Pennsylvania that is authorized to perform trust functions. Credit unions do not have the necessary trust powers to accept these types of deposits.

Print FAQs

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.

If a New Jersey CU member dies and leaves behind multiple accounts, should the credit union, in an attempt to make life easier for the deceased individual's family and friends, transfer all of the funds into the deceased individual's share account?

Would it be prudent for a New Jersey credit union to put in its newsletter information about ownership rights of member accounts?

A New Jersey CU member whose spouse passed away last year has a joint tax refund check to deposit. She has a copy of his death certificate and is the executrix of his estate and wants to deposit the check into her personal (individual) account. Can she?

If a member has an account with two joint owners and the member dies, can either of the surviving joint owners come to the credit union and withdraw all the funds or does the balance have to be split between the two of them?

A grandmother and grandchild are joint owners of a certificate. When the grandmother died, her husband called and wanted the funds released to him since he was married to her when she died. Does he have more rights to the money as the spouse?

After a member's death, the surviving joint owner listed on the member's account came in to withdraw the balance in the account. When trying to verify the signature against the account card, the account card was missing. What should the New Jersey CU do?

A member added her grandson as a joint owner on her share draft/checking account as a "convenience," to allow him to buy her groceries and pay by draft/check. Would he have the right to withdraw all of the funds in the account when the grandmother dies?

A New Jersey credit union member issued a power of attorney to his wife. The member recently passed away and his wife now wants access to the funds in his account. The account has no joint owners listed. Can the CU give these funds to the wife?

After a member died, we received a request from one of the surviving owners on the deceased individual's accounts to open a certificate. The surviving owner is not a member in their own right. Can we open the certificate for this surviving joint owner?

A member dies, leaving behind one surviving joint owner. If the surviving joint owner isn't a member in their own right, should the New Jersey credit union allow the owner to continue the account relationship without becoming a member?

What if the surviving joint owner is already a member in their own right based on another account relationship?

Once a member dies, how long does the surviving owner have before the account should be closed? For instance, if one deceased member has just a share and a share draft, or another member has a share, certificates and IRAs?

In New Jersey, when one owner of a joint account dies, the funds remaining in the account become the sole property of the surviving owner(s) (in the absence of litigation of some sort between the surviving owners). If the surviving joint owner(s) is not a member or is not eligible to become a member, the credit union must close the account and pay the funds to the individual at the end of the dividend period. If the non-member is within the field of membership, they may continue the account by immediately joining the credit union.

If the surviving owner is a minor, they are entitled to full ownership of all the funds in the account. The minor may withdraw the money from the account. If the child is an infant, however, a court-appointed conservator may be assigned to handle the child’s affairs. In that case, the credit union must carefully verify that the purported conservator, etc., truly has legal authority to act on behalf of the child.

In the case of share certificate/term accounts offered by federal credit unions, if all of the certificate/term account owners who are members die, the remaining owner(s), if any, has a right to keep the account open through its next maturity date. If there is no remaining owner, the beneficiaries (or if there are no beneficiaries, the last surviving owner’s estate), may also do so. The account must then be closed unless at least one remaining living owner (not a beneficiary unless there is only one beneficiary and all owners have died) has established membership with the credit union. The board may establish a policy to waive penalties when the certificate (if one is used) is presented for payment or payment is otherwise requested prior to maturity after the death of an owner. Some certificate forms provide that the penalty is automatically waived in such cases. This arrangement may encourage non-members who own such accounts to close them out early.

Please see the Joint Accounts tab in the Deceased Member Issues (New Jersey) topic for specific instructions on handling a joint account.

One of our members died and her son brought in a will saying that he's supposed to get the funds in a certain account. Our records show joint owners on that account who aren't the son. Should we give the funds to the person with the will?

A man presented a POA signed by his deceased mother naming him as an attorney-in-fact and requested to withdraw funds from her account. The POA form says, ‘this power shall survive my death’. What should the credit union do with the funds?

When a New Jersey credit union member passes away, leaving share accounts and share draft accounts, each having different joint owners, who is entitled to the funds in these accounts?

After a member dies, what should the New Jersey credit union do with the funds in the deceased individual's remaining accounts, if it is unable to locate the surviving joint owners on the accounts?

What is an estate and what accounts are included in an estate in New Jersey?

What are survivorship rights?

What if a government agency calls wanting information about the deceased individual's accounts at our credit union? Can the New Jersey credit union release this information?

We received a call from someone saying they are the authorized personal representative for a recently deceased member and they want the funds in their account. The member had no joint owners on the account. Should the New Jersey CU send them the funds?

First, the credit union needs to be concerned with the privacy rules governing disclosure of non-public personal information, pursuant to federal privacy regulation 12 CFR 716.1. Generally, credit unions may not disclose the fact that any individual, including a deceased person, has been a member of the credit union. The credit union should also consider the fact that the call could be from a person engaging in "pretext calling," which is generally when someone tries to obtain information about another person's account over the phone to commit a crime. In addition, the inquiry could be from a party in interest who has a dispute with others who may have a valid claim to the funds. Therefore, the credit union should not provide any information, or release the funds in the deceased individual's accounts, until it verifies the identity and authority of the person on the phone and obtains a copy of a valid death certificate.

The credit union should (1) ask the caller to send the credit union a letter of their authority and a copy of a valid death certificate, and (2) verify the caller's identity. One approach the credit union can take to verify the identity of the person purporting to be the personal representative would be to contact the court involved to confirm the existence of the estate. It could obtain information from the court as to who the personal representative of the estate is and what attorney is representing the estate. Using the information obtained from the court, the credit union could contact the personal representative or, preferably, the attorney for the estate, to confirm the identification information it requested.

Credit union staff should recognize that requiring a person to send letters establishing their authority and a copy of a valid death certificate does not amount to poor customer service. By requiring the person on the phone to provide specific information to the credit union before divulging any information about the deceased individual or their accounts, the credit union is actually preserving the integrity of its member financial information.

What about situations in which the deceased member did not list any joint owners on their account? Who will get the funds in these situations?

What is a P.O.D. Account?

If a person brings in a will naming them as executor of the estate of a deceased member at a New Jersey credit union, may we release funds to them?

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