Funeral costs, estates and a loan

localhero

Willman_Rodders wrote:

A bank can 'set off' a person's borrowing liability with their savings balance. Further, they can do this at any time, though usually it is done when the Bank feel the customer/banker relationship has terminated.

But that doesn't include when the client has died.

As Googler correctly states, it is the executor's legal responsibility to distribute the estate in accordance with the general law and the will.

Generally (but not always) bank accounts are frozen upon death though the banks generally may pay the funeral bill or inheritance tax directly if asked to do so.

What they cannot do is help themselves to the proceeds of the bank account.

The order of priority for the repayment of creditors incidentally is laid out in The Administration of Insolvent Estates of Deceased Persons Order 1986:

1. Secured creditors;
2. Funeral, testamentary and administration expenses;
3. Debts preferred by statute;
4. Preferential debts;
5. Ordinary debts;
6. Interest on debts;
7. Deferred debts.

Whilst the estate may not be insolvent, unless the loan was a secured loan, then the cost of the funeral is first in the pecking order ahead of the loan, credit cards etc.

The bank are either ignorant of the law or pulling a fast one, perhaps fearing that they might be left holding the baby, so to speak.

If the estate is solvent - and there is a property, so I assume it is - then they should wait patiently whilst the executors administer the estate.

NB - that's the law in England, but the rules may differ in Scotland.

magpiecottage

This sounds, to me, like a breach of FSA Principle 8, which says, "A firm must manage conflicts of interest fairly, both between itself and its customers and between a customer and another client."

I would suggest you point this out to the bank and tell them they must reverse it by the end of the next working day or treat it as a regulated complaint.

Remind them that the FSA says you are under no obligation to put a complaint in writing if they try to get you to.

googler

localhero wrote: »

What they cannot do is help themselves to the proceeds of the bank account.

The order of priority for the repayment of creditors .....

The bank may be a creditor, but imagine if it wasn't the bank, but a plumber, electrician or bookmaker who was owed money from the estate. Imagine if they wandered into your relative's house, 10 days after the funeral, and helped themselves to money out of the piggy bank, or failing that, took goods to what they perceived to be the value of their debt?

That's what the bank has done, in effect.

They may have the money, but it's not theirs. Not yet. Again, anyone correct me if I'm wrong, but I'd say they have to wait for the executor to give it to them, in due course, and by due procedure. Not by them helping themselves.

Willman_Rodders

localhero wrote: »

But that doesn't include when the client has died.

Sorry Localhero, and others, but it does include when a client has died.

The banker's right of set off is automatic. They can set off credit balances against debtor balances on notice of death, mental incapacity, bankruptcy, and many other reasons too.

googler

Willman_Rodders wrote: »

Sorry Localhero, and others, but it does include when a client has died.

The banker's right of set off is automatic. They can set off credit balances against debtor balances on notice of death, mental incapacity, bankruptcy, and many other reasons too.

Can you cite any online sources where this 'right of set off' is specifically held to over-ride the executor's responsibility for the estate?

Can you also confirm that this right is applicable under Scots law?

googler

This Financial Ombudsman's page suggests that if the bank were due a regular repayment for part of the loan, that they can only 'set off' that regular payment, not the entire loan. Point 4 in the 'certain conditions' - unless the bank has 'called in' the loan?

Also, this page from The Will Expert seems to suggest that the bank can only pursue for its debt once the funeral expenses have been paid.

And I'll add, based on my recent experience of dealing with my bank, I wouldn't assume that because they're a bank, they know the law any better than the rest of us.

googler

Willman_Rodders wrote: »

Sorry Localhero, and others, but it does include when a client has died.

The banker's right of set off is automatic. They can set off credit balances against debtor balances on notice of death, mental incapacity, bankruptcy, and many other reasons too.

If the deceased had their mortgage with the same bank, are you suggesting that the bank has the automatic right to bankrupt the estate to the full value of the mortgage (by taking all available funds from the client's bank account(s) as described above) before the executor has had the chance to sell the house?

Willman_Rodders

Googler,

Thanks for the informative hyperlink from the Financial Ombudsman. This article though deals with the position where the customer is alive, but fails to have monies available to meet a loan repayment (the 2nd paragraph explains this. It is not looking at the situation where a customer dies.)

Your second hyperlink (to the Will expert) confirms my point. You will see in the original question that 'Also, they want to transfer her current balance to part pay the loan.' So the Bank are 1. asking if there are sufficient monies to clear the liability in full, and 2. advising the enquirer that they intend to set off the credit balances.

The reply from the Will Expert is also correct. 'So, as it stands, the bank cannot force you to pay off the loan until the funeral expenses have been covered. ' is correct; but their reply refers to the remaining balance outstanding on the loan after set off; it does not state that the bank cannot set-off credit balances against debtor balances.

So, in the OP's case, the Bank will exercise their right of 'set off' to reduce their overall level of exposure. Then the bank will then rank as an unsecured creditor (unless the OP's Gran gave collateral to support the loan, in which case the bank would rank as a secured creditor) for the remaining outstanding balance.

Can I cite any online reference to support this viewpoint? No, but your own reference is perfect. What I will say is that my first posting was from my residual knowledge, the second was after reference to my text books. Further, and unlike many bankers of today, I passed my Banking exams (and with awards), and I was an administration manager for many years. So, I think I post with some authority on the topic - but I remain to be reliably corrected.

Does set off apply in Scotland? Set off is a major aspect of banking; I am unaware of any difference in Scotland and would be very surprised if it did not apply. And the OP's post suggests it does apply.

Willman_Rodders

googler wrote: »

If the deceased had their mortgage with the same bank, are you suggesting that the bank has the automatic right to bankrupt the estate to the full value of the mortgage (by taking all available funds from the client's bank account(s) as described above) before the executor has had the chance to sell the house?

No Googler, I am not. Bankrupt is wrong word; set off should be used. What I am saying is that the Bank can set off any credit balances against debtor balances. This will then leave a net figure. If the balance is surplus then these monies will be released to the executors on gaining Probate. If the Bank is owed monies then the Bank will liaise with the executors about arranging a sale of the property. But, as secured lenders, the Bank could take the sale into their own hands and arrange the sale themselves.

This is a decision for them to make as Lending bankers.

googler

I humbly yield to your knowledge. I freely admit no banking exams, and no banking experience (other than as a customer), only recent executor experience.

However, if, taking my example above where the mortgage taken out was one of the bank's products, the bank's 'exposure' happened to exceed both the available funds AND the value of the house, does this mean the bank can effectively take first charge over ALL the deceased's estate with this set-off, and in one stroke 'take' the estate and deny ALL other creditors (including the funeral director)....?

If so, I think there's something wrong with the system.....