What You Need to Know About Safe Deposit Boxes

Everyone’s heard about safe deposit boxes, but important facts about the boxes are a mystery to most people.

It is a rare person who doesn’t know what a safe deposit box is. It’s an equally rare person who knows key details about the boxes. Many items that are kept in safe deposit boxes wouldn’t be there if more
people knew the facts, and that would be fine with the banks.

People walk into a bank branch and see the large steel gates with the thick steel door behind it. That’s where the safe deposit boxes are. The setup gives the impression of the ultimate security. That can be a false impression.

Safe deposit boxes fall through cracks in the law. Federal banking law doesn’t cover the boxes at all. The boxes are a side business of the banks that regulators aren’t concerned about. Most state laws and
regulations either ignore the boxes or have minimal rules about them.

Though most people want to leave a certain legacy and know the importance of preparing for it, I find most people don’t take these simple, essential steps.

The banks don’t guarantee the safety of whatever is in the boxes, and no law holds them liable for losses you incur. Banks generally don’t carry insurance to cover losses to box renters. Most safe deposit lease agreements expressly disclaim any liability by the bank or limit damages to the annual rental fee or a similar nominal amount.

The banks themselves often cause losses incurred by customers. When a bank closes or moves a branch (which is quite common), the bank will drill open the box. The contents are put in a cardboard box or an envelope that is put in storage or brought to the new location. Items can disappear during this process.

A box also will be drilled open when the bank loses contact with a customer. If the annual bill for the rental fee is returned or the fee isn’t paid on time, the bank might drill the box and put the contents in storage until someone claims the belongings.

A recent article in The New York Times detailed several instances in which very valuable possessions disappeared from safe deposit boxes. The banks denied liability for the losses beyond the amounts specified in the lease agreements and aggressively challenged claims in the courts. In some of the cases, the banks clearly were negligent and caused or contributed to the losses. But they had no legal obligation to compensate their customers. Banks rarely have insurance covering losses of box contents.

Another issue is who has access to the box after a renter passes away. Each state has its own rules, and banks often may supplement the laws with their own policies.

Some safe deposit rental agreements allow the renter to specify a person to be granted access upon the renter’s death. To use this policy effectively, you have to designate the person ahead of time and let him or her know about the plan. The person also is likely to need a death certificate before the bank will grant access to the account.

Be careful about giving the person a duplicate key to the box. Some banks allow the substitute access any time after he or she is named. That can be helpful if you become disabled but is a problem if it turns out the person can’t be trusted. The substitute can visit the box at any time and remove items.

A classic problem is a will stored in the safe deposit box. The executor usually can obtain access to a box after the renter passes away, but only by proving that he or she was the intended executor. How can the executor prove that without the will, which is on the box? Sometimes a copy of the will is sufficient, but sometimes it isn’t.

To resolve the problem, the executor or family has to go to court and have someone appointed to gain access to the box.

In some states and at some banks, someone other than the grantor can be granted access to a box after presenting certain paperwork, such as an “affidavit in support of search.” A surviving spouse or another
relative often must be the person accessing the box in these circumstances.

Often, the person must be accompanied by a court official or bank official and might not be allowed to take originals of any documents. An original will, for example, would be delivered to the court by the bank or court official.

For those reasons, a safe deposit box often isn’t the best place to store important documents, such as a will, or valuable items. Your ability to use a safe deposit box also is disappearing, because many banks are closing branches and ceasing their deposit box services. For many banks, the service is unprofitable.

It often is better to keep your will and other important documents in a secure, fireproof box at your home or even a home safe. Or store the documents with your attorney or the executor.

Another option is to scan important documents into an electronic format and store them in an online storage system. Lawyers and financial professionals often provide this service. Keep in mind, though, that
many courts still require the original written will, not a copy or electronic version. When you do use a safe deposit box, select a bank branch that seems unlikely to be relocated or closed. Also, visit the box at least annually to check on the contents, be sure the rent is paid and ask about any changes at the bank.

Ask the bank about its coverage and liability for damaged or stolen items that were stored in the safe deposit box.

Whether you store valuable items in a safe deposit box or somewhere else, insure them yourself. Many valuable items, especially those stored outside the home, aren’t covered by standard homeowners’ insurance. A separate rider or policy is required.

Of course, share your plan with your estate planner, executor and anyone else who is integral to the plan. The best plan isn’t sufficient if key people don’t know where essential items are located.