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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:
- 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.
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:
- 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.
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): 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.
Each of these accounts was established with a separate legal contract. The way each was established depends on how the member requested the account to be opened (e.g. an individual account or who is listed as joint owner with or without rights of survivorship, etc.).
Therefore, each account must be treated and analyzed separately. The credit union's first question when reviewing the contract (e.g., the account card or account agreement) is whether there are joint owners listed on the account(s). Generally, if there is a surviving joint owner on the account and the account was established as a joint account with rights of survivorship, then the funds are the property of that owner. Funds pass to the joint owner independent of the deceased member's probate process. Situations where there is more than one surviving owner are addressed later in these FAQs.
Good account opening procedures are the key to reducing problems years down the line when ownership issues arise.
No. The credit union should never move funds between accounts on behalf of a member unless the member has provided express authorization, another owner on the account authorizes the transfer, or, if the account has no surviving joint owners, an executor or administrator of the estate (i.e., a person authorized by the Probate Court) directs the credit union to do so.
If the credit union cannot contact the surviving joint owners then the funds in the deceased individual's accounts should be held in escrow. Funds are subject to the credit union's unclaimed/abandoned property policy and state abandoned property rules and regulations.
If a surviving joint owner is not a member in his/her own right, then the credit union should require the surviving owner to either (1) become a member of the credit union (if he/she is eligible), or (2) close the account within a reasonable amount of time.
If the account is a certificate/term account, the joint owner has the right to keep the account open until its next maturity date. The credit union should send a notice prior to maturity to the surviving owner that the certificate/term account will not be renewed under its current ownership arrangements.
Depending on the credit union's data processing system, it may be able to allow a surviving joint owner to maintain the current account under the existing account number. However, it would have to take steps to ensure that the member doesn't receive a second set of ownership rights (a second mail ballot, etc.). It should be noted that some data processing systems may not be able to accommodate this. The credit union should work with its data processor to develop a way to establish an appropriate structure to handle accounts owned by the member but not accounted for under that member's membership account number.
No. While account ownership agreements are almost always sufficient to protect a credit union if it pays out funds under those agreements, if litigation arises they may not be totally controlling as to the ultimate respective rights of the interested parties. The credit union needs to avoid speaking in a general way to the subject of ownership rights, since it cannot predict outcomes of future lawsuits and might expose itself to liability as a result. It can speak about how it pays out funds, but it makes good business sense to restrain such communications to those that are individual in nature and not place them in general communications, such as newsletters.
No. One risk that is never warranted is providing legal or tax advice to members. Opening a deposit account involves establishing a legal relationship between the member and the credit union. The member's inquiry about avoiding probate by establishing joint ownership clearly goes beyond the credit union staff's area of expertise.
Respond to the member by stating that the credit union cannot provide estate planning advice or any other sort of ownership or ownership transfer advice. The member services representative can note that the credit union can establish various types of accounts, and that the member (or his/her attorney) can determine whether one or more of them will meet the member's needs. Keep in mind that while joint account laws typically protect the credit union in dealing with any owner (absent notice of a dispute or a contract requirement to get the consent of more than one owner for a transaction), how a court will treat the situation between the various owners, estates, etc. with an interest can be quite uncertain.
In the context of deceased members, an estate includes the possessions of the deceased member that are subject to probate (administration supervised by a probate court) and distribution to heirs and beneficiaries. Funds in a deceased members accounts for which there are no named beneficiaries or no joint account owners with survivorship rights become property of the estate.
If a member dies with a will, the probate court will appoint an executor as named in the will to distribute the assets of the estate as instructed by the will. If a member dies without a will, the probate court will name an administrator to distribute assets of the estate according to state laws of intestacy.
No, the credit union should not release funds if a will is the only document presented. A will is not valid until it is approved by a probate court. Members of the decedent's family, even if named in the will as heirs or executor, have no right to the property described in the will, and no authority to act under the will, until the probate court says so. If the will is approved, the probate court will issue Letters Testamentary, attested by a seal of the court, stating the qualification of the executor, the date, and the name of the deceased. When presented valid letters testamentary, the credit union may release funds to the executor via a check made payable to "The Estate of (Deceased Member)".;
In a payable-on-death account (P.O.D. account), the account owner controls the funds during his lifetime. When the account owner dies, the funds in the account shall be divided equally between the persons listed on the account card as P.O.D. beneficiaries. This is a simple alternative to the probate process, which can be both slow and expensive.
The credit union may immediately release the funds to the beneficiaries after verifying the death of the account owner (obtain a certified copy of the death certificate) and verifying the identity of the beneficiary. The credit union need not hold the funds for an executor or administrator of the estate, as these funds pass outside the probate process.
If only one beneficiary is listed and he or she dies before the account owner, funds in the account after the death of the account owner will become property of the deceased person's estate. If multiple beneficiaries are listed, and one dies prior to the death of the account owner, the funds shall be divided equally between the remaining surviving beneficiaries. In other words, heirs of a deceased beneficiary may make a claim to funds in a P.O.D. account only if the beneficiary survived beyond the account owner's date of death.
Members may choose to set up a joint account with or without rights of survivorship. In both types of accounts, all joint owners own the account in proportion to each party's net contribution. However, the credit union may pay any sum in the account to any party at any time.
In a joint account with rights of survivorship, both parties jointly own the funds during their lifetimes. At the time of death of one owner, all sums in the account immediately belong to the surviving account owners, thereby avoiding the probate process. The heirs of the deceased have no claim to funds in the account.
In a joint account without rights of survivorship, on the death of a party, the deceased party's ownership interest in the account passes as a part of the party's estate by will or intestacy, thereby entering the probate process.
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, he or she may continue the account by immediately joining the credit union.
If the surviving owner is a minor, he or she is 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.
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If the member didn't list any joint owners on an account, then the funds will become property of the deceased individual's estate. The general rule is that such funds can only be released to a personal representative, the executor or administrator of the estate, as named in the will or appointed by the Probate Court. Any individual claiming to be an executor or administrator needs to present letters of authority from the Probate Court, and the credit union needs to verify these items with the court.
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Yes, the member can deposit the check. The Code of Federal Regulations, 31 CFR 240.15, states that these checks, when indorsed by an executor or administrator, shall include, as part of the indorsement, an indication of the capacity in which the executor or administrator is indorsing. An example would be: John Jones by Mary Jones, executor of the estate of John Jones.'' Such checks, when presented for payment by a financial institution, will be paid by the Treasury without the submission of documentary proof of the authority of the executor or administrator, with the understanding that evidence of such claimed authority to indorse may be required by the Treasury in the event of a dispute.
The Regulation goes on to say that if an executor/executrix has not been appointed, persons claiming as owners shall return the checks for appropriate handling to the Government agency that certified the payment.
No. The credit union should never release funds to anyone based on a will alone. A will is meaningless until it has been accepted into probate and a personal representative has been appointed. If the account: (a) has no joint owners and (b) an executor or administrator presents the appropriate papers from the Probate Court, the credit union, after verifying the papers, can release the funds to the executor or administrator.
However, if the account does have joint owners and the credit union receives an order from the Probate Court to release funds, the credit union should contact its attorney immediately for legal direction in the matter prior to releasing funds. It's quite possible the Probate Court does not have all of the facts in such a case and the credit union's attorney will need to straighten the matter out to avoid potential liability for the credit union later.
If the account contract authorized any joint owner to withdraw the funds without the consent of any other joint owner, then the credit union was correct in giving the funds to the surviving owner who made the initial withdrawal request. When there are two or more joint owners on an account and there are no restrictions on the right of joint owners to individually make withdrawals, any of the joint owners on the account can withdraw all the funds at any time before or after the death of any of the other owners. Generally, after one of the owners dies, there is no requirement that the credit union must divide the remaining funds in the account equally between any surviving joint owners. The account contract should be checked on this matter, however, since the language of the agreement controls the situation.
No, it appears that the grandfather would not have any right to the funds in this scenario. If the certificate was established in the typical manner as a two-person joint owner account with survivorship arrangements, then the surviving owner (i.e., the grandchild) is entitled to the funds.
There are some joint ownership arrangements that do not involve survivorship. Check the account card and agreement used to establish the account to make sure it was established with survivorship arrangements. In addition, if the surviving owner is a minor (which will frequently, although not always, be the case with a grandchild), make sure that the credit union knows to whom to release the funds. This may be accomplished by requesting a Probate Court order specifying who should receive funds on the minor's behalf.
If the grandfather presents a Probate Court order to the credit union, requesting that the funds be released to him, then the credit union should check with its attorney about how to proceed.
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 his/her 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 his/her 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 his/her accounts, the credit union is actually preserving the integrity of its member financial information.
First, make sure that the credit union has seen a valid death certificate for the member. Second, the credit union should make every attempt to find the account card. If the credit union, after repeated searches, simply cannot find the account card, then it should call the credit union's bond carrier and consult with the credit union's attorney on how to handle this error.
Yes. In this scenario, the surviving joint owner (i.e., the grandson) could withdraw the funds. If other family members believe they have a right to the funds, they should seek assistance from the Probate Court.
As a service to members, credit unions may want to make a practice of reminding individuals of the implications when they open accounts or add joint owners to existing accounts. In this scenario, the grandmother may not have been aware that the grandson would receive all of the funds in the account when she died.
Powers of Attorney (POAs) terminate immediately when the principal (the person granting the power) dies. An attorney-in-fact is merely an agent for the principal and can only take actions that the principal could take herself.; Since the principal can no longer act after death, the agent loses any power to operate under the POA form. The language purporting to stretch the power beyond death is invalid.
If the account does not include any joint owners or beneficiaries, the credit union should hold on to the funds until contacted by the executor or administrator of the estate.
No. The credit union should never honor a power of attorney once the person who granted it is deceased. Once the member passes away, then the power of attorney ceases to be valid. This is true even if the credit union does not know of the individual's death. Thus the credit union should never honor a request from a person presenting a power of attorney unless it is confident that it can collect the funds involved back from the person presenting the power of attorney should that be necessary to avoid a loss.
The same answer applies to a person who had "durable" power of attorney before a member's death. Even though a durable power of attorney continues to be effective if a member becomes incapacitated, it ceases to be valid if the member dies. See the "Power of Attorney" topic for more information.
The credit union cannot open any type of account for a surviving joint owner unless that person is a member of the credit union in his/her own right. Simply because a person is joint on an account does not mean that person is within the credit union's field of membership and has become a member. However, if the person is not a member, but is eligible for membership and decides to become a member, then he/she would have the same account opening privileges as other credit union members.
Again, the credit union should be extremely cautious about releasing information about a deceased individual's accounts to anyone. Generally, if the request is from a federal government agency, that agency must either follow the same procedures that it is required to follow with regard to information about a living member's account; or go through the probate process to obtain the information.
