A local bank told my daughter that she must pay the early withdrawal penalty and close the CD account, or if it is left until maturity the future interest will be turned over to the State. They stated, "The bank's policy does not honor a waiver of penalty based upon death". And that, "any change to add a new beneficiary or SS number would require the penalty and constitute a new account at the new current lowered rate. There are two more years left until maturity.
This seems harsh - but, if it is a written policy of the bank, it appears your daughter doesn't have a choice. The only choice I would suggest is that she doesn't reopen a C D or any account with that particular bank! You daughter should ask to see the written policy re CDs.
Wills and Living Wills Lawyer
Whoever your daughter talked to has no idea what she's talking about. Federal law says that upon death of the owner of a CD, the CD can be cashed in without any penalty. The bank cannot adopt a policy which overrides federal law.