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Wednesday, April 15, 2020

What if the bank won't let the executor pay the funeral bill because they want the funds for the mortgage?

A lot of executors run into unexpected problems when they try to deal with the deceased's assets held in a bank. In particular, where the deceased had a mortgage, the bank will often decide that it wants the deceased's bank account to be used to pay the mortgage, even if there are other debts to be paid first. A reader asked me about this, and since it's a question I seem to answer frequently in my daily practice, I thought I'd answer it here. The question and my comments are below:

"A relative has died and left a real mess for his executor and sole beneficiary to sort out. The main issue is that although there are sufficient funds in his account to pay for the funeral the bank is claiming the whole amount to offset against his mortgage and refuse to allow the funeral to be paid out of the frozen account. Can they do this? My understanding is that funeral expenses are a first charge on the account any other debt such as a mortgage, which I would expect to be secured against the property itself, are second or lower charges. How do we get them to accept the funeral home's bill?"

I've seen this happen so often now that I pretty much expect all banks to do this. I used to recommend to executors that they set up executor's estate accounts in the bank where the deceased had accounts, but I don't anymore. I now recommend that they remove the deceased's assets out of the hands of the banks as soon as possible because of this very thing you're talking about. Banks feel that because they have the money in their branch, they can control what they do with it. The law does not support that.

You are correct that the funeral bill ranks above the mortgage in terms of repayment. So does Canada Revenue Agency. What you are seeing here is the clash between the law (that funeral and tax are paid first) and the bank's own corporate policy (that the bank gets paid and to hell with everyone else, including the executor who is left holding the bag). However, it is NOT up to the bank to decide which bills are paid from estate assets.

You are going to have to stand your ground and insist on release of the full account to you. Take the issue up layer after layer of management if you have to. Maybe even hire a lawyer to back you up. Maybe call the bank ombudsman.

The last time I had to deal with this, I wrote a letter to the manager of the bank, reminded him of the law, and told him if the assets of the deceased were not turned over to the executor in full within 24 hours, I would be serving a Statement of Claim on them the next day. I reminded him that not only would my lawsuit require them to turn over the assets, I would ask the court to award legal costs against the bank for doing what is clearly wrong. It worked, as well it should since I was on the right side of the law.

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