Hello,
Beneficiary(ex-wife of the account holder) came to claim the funds in the account after her ex passing. Several weeks later we received a complaint through DFPI about her stating that a withdrawal for $1,100 that was done on the day of her ex passing (03/24/2020) was unauthorized. It was a withdrawal initiated by her sister-in-law for the cremation of her ex. We, as a financial institution did not receive a copy of the death certificate until 04/17/2020. We did receive verbal notification that he passed on 03/27/2020.
We are not clear whether we are liable for the $1,100 ACH originated withdrawal since we did not know that the account holder was deceased at that time. Also, when does the beneficiary becomes the owner of the funds- the moment the account holder passes or the moment they present us with a death certificate?
Any feedback is greatly appreciated.

This is a State law issue, but typically the funds passed at the time of death.

Whether the account holder was alive or not, why would the sister-in-law be allowed access to the account even if the accountholder was still alive?

Thank you!
It was an originated ACH transfer via online banking. Bank had no knowledge that it was not done by our member. Member's credentials were used.

Then I think you are left with the fact that his credentials were stolen unless she was an authorized user on the account.