Navigating Loss: A Bank’s Guide to Managing the Death of a Customer

May 6, 2024

As Benjamin Franklin once said, “in this world nothing can be said to be certain, except death and taxes.” While banks cannot help with taxes, they certainly play a role in the handling of financial assets after a customer passes. The death of a customer presents a unique set of challenges for banks. Community banks in particular must show sensitivity to a grieving family while also navigating procedural and legal obstacles to ensure proper handling of the deceased’s assets. This article outlines some of the initial steps to be taken and logistics to be considered upon the death of a bank customer.

Initial Steps: Verification, Inventory, and Document Gathering

Upon hearing of a customer’s death, the bank should request a copy of a certified death certificate and then once verified, determine what accounts the deceased individual had located at the bank, including deposit accounts, safe deposit boxes, loans, and any other financial products held with the bank. After assessing the customer’s accounts and having a clear inventory of their financial holdings, the Bank should also request copies of (a) any existing last will and testament or trust documents which provide guidance on the decedent’s wishes for asset distribution and where the deceased assets should be distributed, (b) a marriage certificate (if applicable) which provides crucial insight for determining spousal rights, and (c) a proof of legal name change (if applicable) to ensure the accuracy of account identification.

Deposit Accounts: Beneficiary Verification, Freezing Accounts, and Social Security Funds

To ensure funds are not misused, the deceased’s accounts should, if possible, be frozen upon receiving verification of death. This can be done with single-owner deposit accounts, but jointly-held accounts with a surviving owner should remain accessible to the survivor. Single-owner accounts with a Payable-On-Death (“POD”) designation require particularly careful handling. While a personal representative of the decedent’s estate cannot unilaterally modify the POD beneficiary designation for the account after the customer’s death, a will can supersede and alter the beneficiary if the will specifically mentions the POD account. Thus, POD accounts should not be paid out automatically upon hearing a customer has passed.

For accounts which do not have a POD designation, or where the POD beneficiary pre-deceased the original account holder, funds from the account should be distributed to the original account holder’s personal representative or heirs, as the case may be. If none of the following apply, or if the bank knows of disputes as to the beneficiaries of the estate, the bank should hold the funds until directed to make a distribution by a court. It is also worth noting that Social Security payments often continue for a period following the customer’s death. These must be tracked, and any funds deposits made after the date on the certificate of death must be returned to the Social Security Administration.

Outstanding Loans: Probate and Demand for Notice as a Creditor

Following the passing of a customer, the bank—as a creditor—must assess all outstanding loans held by the deceased. For secured loans, the bank may need to consider foreclosing or repossessing the collateral if the loan remains unpaid. To recover on unsecured loans that had been made to the decedent, the bank must consider whether it needs to pursue legal action against the decedent’s estate. In various cases, another party (such as the decedent’s personal representative or a particular beneficiary) will need to be named and involved in the proceeding as well.

If the bank decides to pursue legal action against the estate, it should file a “demand for notice” with the appropriate probate court. For Minnesotans, this is generally located in the county where the customer resided at the time of death. The demand for notice will include the decedent’s name and date of death, the bank’s contact information and interest in the estate, and demand notice of orders and filings related to the decedent’s estate. In the event of a probate application for the decedent, the court will send the bank’s demand for notice to the filer, and the filer must then send the bank a notice of the probate proceeding. After receiving notice of the probate, the bank may file a written statement of claim, which must be satisfied before the probate court can close the case.

Considerations for Single-Member LLCs
Unique challenges arise when a deceased account holder was the sole owner of a single-member limited liability company with business accounts held at the bank. While the personal representative of the decedent’s estate may seek access to the LLC accounts, the bank should deny access until a new authorized signer for the LLC accounts has been appointed. The LLC is a separate legal entity from the deceased, and while the decedent may have been the only individual with an interest in the LLC, the LLC’s assets are not part of the decedent’s personal estate. The new signer may or may not be the personal representative, but until the bank receives a valid resolution appointing a new authorized signer for the LLC’s account, any funds within the LLC’s business accounts should not be accessed.

The death of a bank customer can pose many issues and special circumstances. Because of the fact-dependent nature of estate and probate matters, banks should not hesitate to seek legal guidance about individual situations, especially when a deceased customer’s business and other financial condition was unique or complex.