I have a Texas borrower who had a Personal Credit Line. She died. Son deposited money to her checking account that we have offset to pay the balance.

Son is spouting off regarding homestead excemptions and that the estate does not owe the money any longer.

I believe homestead excemptions apply to primary residence and any loans regarding such, but this being Texas, I wanted to double check.

The funds deposited into the checking account came from a 401k lump sum distribution to son as beneficiary and disability insurance survivor benefits.

Since he deposited to her account, I believe we can offset. Any thoughts?

I presume she wasn't married. She is deceased. Dead people don't get homestead exemptions. (BTW: There is certain personal property that is exempt from claims of creditors: Property Code Chapter 42)

The death of a customer does not revoke the authority to accept, pay, collect, or account until the bank knows of the fact of the death and has reasonable opportunity to act on it. Even with knowledge, a bank may for 10 days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account. See UCC §4.405

You did not say when you learned of the account owner's death, but when you learned of it, you should have frozen the account except for paying or certifying checks drawn on the account for 10 days after the date of death.

As far as the deposits, I would not exercise right of set off after an account holder dies. You would be putting your interests ahead of other creditors of the estate.

Furthermore, in this case, you know that the funds that were deposited into the account after the date of death are the personal property of the son. Both the 401K distribution and the disability insurance benefits are benefits that pass outside of probate.

The son made a huge mistake depositing those into his mother's account. Is he trying to avoid some sort of debt? Is he afraid that if he deposits it into his own account, the creditors will get it? Or is he just hiding the money from his spouse? Who knows? Maybe he just wasn't thinking.

However, now that the money is in the mother's account, I think you have to freeze it. How does he get it back? I think he'll have to go to a probate court to probate the estate and prove to the judge that the money is his. As the bank, I wouldn't unilaterally make the decision that money in a deceased person's estate belongs to someone other than the estate.

I'm tempted to say that the money that was deposited after the account owner's death could be returned to the son, but I hesitate to do that because other creditors may come after the bank when they see that the bank released funds in the account to the son. I think the bank could defend itself by showing the deceased's account balance at the time of death--and showing that the money that was deposited belongs to the son. However, I am concerned that it might not go so smoothly. You'll need to talk to the bank's attorney.

thanks Z.