How to Stop a Zombie Bank Account

 Posted on April 21, 2016 in Estate Planning

Millions of people take advantage of the convenience of online banking and bill paying, including setting up automatic withdrawals from their checking accounts each month. In many cases, it is done out of convenience. However, with some creditors, automatic payments may also be part of the stipulation for repayment, as in a loan repayment plan. When a person dies, and his or her bank accounts are closed, one would think that these automatic payments stop. Yet this is not always the case. Many families find that months later, they are dealing with "zombie bank accounts."

When a person opens up a checking account, he or she is given disclosure paperwork by the bank. Often included in those disclosures is the bank's right to reopen a closed account if a debit or credit arises. Banks do not have to decline the transaction. Moreover, they are also not required to notify the customer that an account has been reopened.

In one case, it actually took an overdraft of $888,888.88 to finally close a zombie account of a deceased California man. Several days after the man had passed away, his son went to the bank and closed his father's accounts. However, what the son did not know was that his father was paying hundreds of dollars every month to several payday loan companies. As part of the stipulation of the loans, these lenders automatically deducted the funds from his checking account every month. These deductions automatically reopened the account and it began showing a negative balance and racking up overdraft fees.

To make matters worse, it was the bank's policy to not close an account which had an outstanding balance. Additionally, several bank employees could not override that policy to close the account and stop the activity. One bank employee finally figured out a way to stop the account—making a fake withdrawal of almost $1 million, which triggered a fraud alert on the account. The bank has since changed its policy on closing zombie accounts.

This is just one example of what can happen when a person dies without having a solid estate plan in place. The son in this case had no idea what his father's debts were—something that an executor of an estate needs to know in order to protect that estate.

If you need help drafting a will, trust, or other estate planning documents, contact an experienced DuPage County estate planning attorney today.

Sources:

http://www.banks.com/articles/what-zombie-bank-account

http://www.huffingtonpost.com/2012/08/21/zombie-bank-account-overdraft-closed-account_n_1819697.html?utm_hp_ref=estate-planning