Account Owner Deceased: Change Account?

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Question:

We have been been notified that the sole owner on an interest bearing account is deceased. It has been several months and the personal representative has not come in yet to close the account. Should this checking account be changed to a non-interest bearing account?

Answer:

No, that is neither your bank's responsibility nor its right. Your contract with the decedent says you will pay interest. You do not get to unilaterally amend it just because he died.

At most, since you are aware of the death and know that it is improper to report interest in the name and SSN of a decedent, you could remove the decedent's SSN from the account. In the absence of a valid TIN on the account, your bank would be responsible for backup withholding.

The withholding does not operate as a penalty; the amount would be credited to any income tax liability the estate may have. Regardless, this is something less than an artful tactic when dealing with the affairs of a decedent and it is not widely used.

First published on BankersOnline.com 11/01/10