I have a customer that would like to deposit a check payable as follows.

Ms. Customer
B/O Joanne Smith

She states that Joanne Smith is deceased and this is her inheritance from her deceased aunts (Joanne Smith's)IRA.

Should we allow our customer to deposit such an item?

I'm not familiar with "B/O" as anything with special meaning on a check. Do you trust your customer? Good history, and all that? I'd try to verify funds if you could, and check for an obituary online, but I don't know that I'd have much reservation about it assuming I knew the customer and trusted them. Unless we're talking a million dollar check or something

I would assume that "B/O" would mean "beneficiary of" which would fit with her story about her Aunt's IRA.

We use B/O when issuing distribution checks to beneficiaries to give us a stronger audit trail back to the decedent's IRA. The UCC does not recognize the legend as a restriction on the payee therefor the BOFD has no duty to verify that the decedent is, in fact, deceased.

The correct title of the inherited IRA would be "Ms. Customer, beneficiary, Joanne Smith, IRA." The IRA custodian has wrongly decided that it should carry over the name of the account to the check it issued as a distribution; i.e. the check should have just been payable to "Ms. Customer," the rest of the verbiage is surplus.

After further investigating I think you are correct and it stands for Beneficiary of. Unfortunately the Rep I spoke with from the paying company didn't realize that either.