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Death of an account holder – issues related to bank statements

Death of an account holder – issues related to bank statements

The elderly sometimes fall prey to financial abuse, including the alteration or unauthorized use of their checks. Banks are required to watch for such financial abuse and report suspicious acts to Adult Protective Service. How does the bank protect itself when claims from such abuse arise?

One defense is the statute of repose under the Texas Business & Commerce Code (UCC). Under that code, a customer has one year from the date the bank sends or makes available a statement of account to notify the bank of any forgery, alteration or other unauthorized activity in the account. But that time period can be shortened to 60 days in the account agreement. If the customer fails to give notice of a forgery or alteration within that 60 day time period, he or she is precluded from recovering against the bank.

What happens if the forgery or alteration occurs after the death of the customer? If a customer dies, has not designated a payable-on-death (POD) beneficiary and either does not have a will or the will has not been probated, how can a bank protect itself against claims of possible forgery or alteration? That issue arose in Jefferson State Bank v. Lenk, where an employee of the county clerk’s office forged letters testamentary and took control of a customer’s accounts at two different banks. The Supreme Court of Texas held that a bank satisfies its burden to send or make available the statement to its customer by retaining the statements at the bank and making them available for retrieval by the estate administrator. The repose period, however, only begins to run once an administrator is appointed.

The court’s decision places a heavy burden on an estate representative to take immediate action. In many estates, the representative may be unaware of the existence or location of the decedent’s bank accounts, especially when the decedent has left little personal information or maintained poor banking records. The court held, however, that the UCC’s focus on certainty and predictability trumps this concern, especially considering that the administrator’s appointment could come many years after the customer’s death.

The result may be different if the unauthorized activity occurs during the lifetime of the deceased. In Coffey v. Bank of America, the husband held an account in which his second wife was named the POD beneficiary. The husband died and the executrix of his estate (his daughter from a prior marriage) complained that her father had not signed 73 checks of the checks written on his account. She filed suit against the bank on the unauthorized endorsements within 60 days of her appointment, as required by Lenk. The bank countered that the executrix’ claims were precluded under the UCC, because the executrix’ claims were not filed within 60 days of the mailing of the statements. The Beaumont Court of Appeals distinguished Jefferson State Bank noting that, in Lenk, the transactions at issue occurred after the death of the customer. In Coffey, all but two of the transactions at issue occurred before husband’s death. All but two of the contested transactions were included on statements of account that were sent to the husband and then to his POD beneficiary without interruption. Though Coffey filed her suit within 60 days of her qualification, the court concluded that the filing of her suit was inadequate to provide notice to the bank.

The Coffey case involved another defense banks should be aware of. The petition did not identify the specific checks, specific dates or specific amounts. The court held that since Coffey failed to inform the bank of the specific items she questioned, her general reference in her pleading was deemed inadequate.

By David B. West

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