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ACH debits after depositor’s death

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When a customer dies (individual account) and has 2 PODs on the account, do we continue to pay ACH drafts (utilities, insurance, etc.) on the account? Also, I didn’t understand the paying interest on interest bearing accounts. We have NOW accounts that have one owner and certificates of deposit. Do we stop paying interest on these interest-bearing accounts?

ACH and other drafts: An individual’s authorizations for a utility or insurance company, etc., to draft the individual’s account via ACH or paper drafts (also called “remotely created checks”) ends with the individual’s death. In the case of an account with POD beneficiary(ies), the funds in the account are payable to those beneficiaries, and there is no legal basis for continuing to honor ACH and other drafts from the account that were authorized by the decedent.

There may be exceptions, if the beneficiary(ies) request that the bank pay a utility or similar debit so that the beneficiary can make arrangements to take those payments over (such might be the case if the beneficiary lives in the decedent’s home or has some other interest in keeping the lights or heat on there). But the general rule is that the payment drafts (ACH or other) received after the death of the account owner should be returned unpaid.
Post mortem interest: As for discontinuing the payment of interest on interest-bearing accounts, there is a contractual obligation for those interest payments to continue, but payments of interest after the owner’s death cannot be reported under the decedent’s SSN. That fact should encourage the institution to push (compassionately, of course) surviving co-owners or family members to get the decedent’s name removed from joint accounts and resolve any POD transfers/payments. If there are sole-owner accounts involved, and the estate will be probated, the accounts need to be moved into estate accounts with new EINs.

Some states have laws specifically providing for the termination of interest payments on accounts after specified periods after the death of a sole owner. Such provisions supersede the contractual obligation to continue the payment of interest. If your state does not have such a provision in its laws, you would only be able to stop paying interest if the deposit contract included a provision for such action, but before inserting such a provision into deposit contracts, the bank should consult legal counsel to determine whether it would be permitted in your state.


First published on 05/31/2020

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