Q: My father passed away in October, 2011. All of his assets, including CDs, are held in a trust and I am the executor. Prior to his death, he invested over $200,000 in a CD with Wells Fargo that is due to mature in 2016. I went to the bank to try and break the CD and was told in order to cash it out, I would have to forfeit over $5,000 in interest.
Is this accurate? My siblings will need the money before 2016, but a $5,000 penalty seems excessive. What do you think? - Elaine; Sacramento, CA
A. I discussed your question with a seasoned banker at Wells Fargo to find out how they handle Certificates of Deposit held in trust. My understanding is that whether or not there is a penalty at Wells Fargo for cashing a CD out early in this situation will depend on the way the CD was set up and the successor trustee. If there is no beneficiary or successor trustee named on the CD itself, then there is no penalty for cashing out the CD early; but if there is a living trustee named on the CD, there will be a penalty.
So, if your father was the sole trustee of his trust and there was no successor trustee named on the CD, then you should be able to break it without a penalty. However, if you served as co-trustee with your father while he was alive and are now the sole trustee, or if you were named as successor trustee on the CD, there will be a penalty for cashing it out before maturity.
To make sure you have a complete and correct explanation about your CD, I would ask to speak with the branch manager of your bank so that you understand the specifics of your situation.