POD CDs: Handling Interest after the Customer has Died
by Mary Beth Guard, BOL Guru
Question: I have a situation regarding a deceased CD customer with several POD CD's. What is the proper procedure for paying interest on a CD after the customer has died? Does the CD stop earning interest as of date of death or maturity date of CD? If the interest does not stop at date of death and continues until the maturity date, does the interest get reported in the deceased owner's TIN or beneficiary's TIN (which we usually do not have until they come in and request disbursement of CD funds). If the interest stops as of date of death, are we required to disclose this in the initial CD disclosure when account was opened? Any information would be appreciated on how to handle this.
Answer: Upon the death of the owner of the CD, the CD's ownership passes to the POD beneficiaries and the interest after date of the owner's death must be reported under the TIN of the first named beneficiary.
You cannot simply stop paying interest.
If you don't have the TIN on the beneficiary, you need to follow due diligence procedures to get it and may need to engage in backup withholding in the meantime.
Because these types of situations are common, many institutions are changing their procedures and requiring more information on Payable on Death beneficiaries at the time of account opening or the time of CD purchase.
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