Monday, September 26, 2022

May 2015 Legal Briefs

  • I see dead people – Part 2
  • New UTMA Amendment

I see dead people – Part 2

By Mary Beth Guard
Apparently, you see dead people, too, as evidenced by the number of questions I received after my previous article on the subject. This follow-up article is designed to address issues raised by those questions.

Those of you who have been in the banking business in Oklahoma for many years remember the “bad old days” when the death of a customer would trigger the requirement (unless it was a joint account held solely between husband and wife) to freeze the account, report to the Oklahoma Tax Commission, and wait for a Tax Commission release before anything could be done with the funds. We rejoiced when that “freeze and report” statute was repealed, because it removed a burden from us and the repeal also eliminated confusion that had existed between the interplay of UCC 4-405 (which gives a bank authority to pay pre-death checks for up to 10 days after the customer’s death) and the OTC freeze statute. With the OTC statute gone, only the UCC statute (12A O.S. Section 4-405) remains.

The exact wording of the statute is as follows:
(a) A payor or collecting bank’s authority to accept, pay, or collect an item or to account for proceeds of its collection, if otherwise effective, is not rendered ineffective by incompetence of a customer of either bank existing at the time the item is issued or its collection is undertaken if the bank does not know of an adjudication of incompetence. Neither death nor incompetence of a customer revokes the authority to accept, pay, collect, or account until the bank knows of the fact of death or of an adjudication of incompetence and has reasonable opportunity to act on it.

(b) Even with knowledge, a bank may for ten (10) days after the date of death pay or certify checks drawn on or before that date unless ordered to stop payment by a person claiming an interest in the account.

It is a careful blend of provisions designed to strike a balance between the need to cut off pre-death check payments that don’t hit the bank until after the death and the desire to allow the flexibility for items to be paid for a short period of time after the customer’s passing. The statute is permissive, not mandatory. If the bank is aware of the death, the bank is not required to pay pre-death checks written by the (now deceased) customer – the bank may choose to do so, but does not have to. The statute also aims to protect a bank that continues paying a customer’s checks when the bank is unaware of the customer’s death.

Does that mean a bank should be checking obituaries? There is no requirement for a bank to do so, but many banks continue the practice. It boils down to a business decision. The goal of checking obituaries is to increase the odds that the bank could learn of a customer’s death at the earliest possible opportunity. Knowing a customer has died can help avoid awkward moments (“How’s Joe doin’?,” asked the banker, “Haven’t seen him in a while!” “Joe died two weeks ago,” says his widow, bursting into tears.) Knowledge of a customer’s death can help reduce the possibility of fraud, such as where the deceased individual’s direct deposits continue to come into a joint account, where they are then spent by the joint owner, or where an authorized signer continues writing checks or using a debit card on an account after the death of the account owner.

Early knowledge of the death can also be important in the loan context. If Joe singlehandedly manages his cattle operation (and the livestock serves as security for a loan you made to Joe), you may need to take immediate steps to protect and preserve your collateral if Joe passes. If Joe has a credit card you issued to him, you want to hot card it before it could fall into the hands of someone who wants to test drive his credit limit.

When unearned Social Security direct deposits hit the account (in a situation where the individual did not live past midnight on the last day of the month and was therefore not entitled to the payment that hit the account days later), you want to take steps to prevent the funds from being siphoned out. You don’t want to fight a Treasury Department reclamation action, so preventive steps are essential.

But back to the obituary. Is a daily review of obits foolproof? Not even close. In today’s mobile society, folks aren’t always near home when they die. A death notice might be published in another state or community. And the cost of actual obituaries in some newspapers can lead loved ones to opt out of even publishing one. In the event of a sudden or unexpected death, it can be a while before grieving family members can face the task of writing even a simple notice.

There is also the problem of false identification, where a dead person has the same name as your customer, maybe even the same age. I’ve had more than one banker tell me about situations where they believed a customer to be dead, based upon an obituary review.

If it were me, I would do the review. But only you know what is best for your institution. Your size, your location, your geographic footprint, how well you know your customers – all those things factor into how effective obituary reviews will be. If you are currently having someone read the obits, what has your experience been, in terms of effectiveness? Have you had “false positives,” where you believed a customer to be dead, based upon what appeared to be his obituary, only to have a teller scream “He’s ALIVE!” when the not-dead person strolled into your bank? Awkward!

There have been no published Oklahoma court decisions under this statute that enlighten us regarding when a bank is considered to “know” of the death of a customer. In fact, there are only two reported Oklahoma cases that cite or discuss 4-405. Interestingly, one of them is a 1977 case where the customer had written a check to the bank for damage he caused when his vehicle plowed into the bank’s drive-through structure. The bank was given the check before the man’s death, but didn’t cash it until after he passed. The administratrix of the man’s estate sued the bank and lost. Interesting fact situation, but it doesn’t add to our understanding of what constitutes the bank’s knowledge of the death because in this case, the bank was informed of the death directly by the deceased man’s daughter.

The danger is that if one employee of the bank knows of the death, that knowledge might be imputed to the bank itself, legally. For example, if bank employee Heather lived next door to Gertrude and saw the hearse pull up and collect Gertrude’s body, or Heather went to the funeral, Heather “knows” of the death and it could be argued that the bank therefore knew.

So what do you do? Each bank should have an internal death notification process where employees are required to immediately notify a particular person or persons when they learn of the death of a customer through whatever means are deemed reliable. Once the notification is received, verify or confirm, as appropriate, then the following steps should be taken:

1. Determine the nature and extent of any customer relationships your institution had with the individual.

2. See if there is any indication on your system that the death had previously been reported and acted upon. If not, proceed with this to-do list.

3. If the decedent had deposit accounts, you should have an internal policy that establishes what you do when there are Payable on Death beneficiaries on an account or joint account owners. While you have the authority to continue to pay checks drawn by the person prior to their death for up to 10 days after their death unless you are ordered to stop by someone claiming interest in the account, your institution’s policy may be to not do so in the event there is a joint owner or POD beneficiary in order to preserve the funds for the POD beneficiary or the surviving joint tenant.

4. Keep in mind that the authority of an agent terminates upon the death of the principal. Identify any agents and take steps to ensure they cannot conduct further transactions. (More on this below.)

5. Look to see if the individual was a renter on a safe deposit box. If so, are there co-renters? The co-renters can continue to access the box. If there are no co-renters, the box should be flagged as belonging to a deceased customer. There are then four options for the contents of a box with a single deceased renter to be accessed. Those are discussed later in this article.

6. If you have issued debit cards to the decedent or his agent, make sure the card privileges terminate so that misuse cannot occur.

7. Return any ACH direct deposits that the account is not entitled to.

8. Take steps to ensure deposits payable to the decedent are not allowed to be made post-death into any joint account that the decedent used to co-own.

9. Don’t forget about sole proprietorship accounts. If the individual who was the sole proprietor dies, the account is subject to the same rules as a regular sole ownership (individual) account. Is there a POD beneficiary? Yes, Nessie the bookkeeper was an authorized signer on the account and today is payday for all the employees of the sole proprietorship, but sorry – Nessie’s authority expired when the sole proprietor died and if there is no POD beneficiary, they’re either going to have to do the Section 906 procedure (if they are eligible for it), described below, or they will need to wait until someone is appointed personal representative of the estate.

10. If the decedent had joint accounts, examine any ACH debits that were solely authorized by him. The surviving joint owner now owns the funds and may or may not want any of those debits to continue. If they are for the house payment, utilities, etc. for the house the survivor still lives in, they probably want you to honor them, but do your research.

In our free Banker Tools section on BankresOnline, you’ll find a Death Notification Form that will help you document when, how, and from whom notice of the death was received and action taken.

I mentioned earlier that there are four options for the contents of a safe deposit box of a deceased renter to be accessed (in addition to access by a surviving co-renter, which is automatic).

Option one is the search procedure after death, which is found in Section 1308 of the State Banking Code. It can be used when the decedent was a sole renter, but presumably could also be used when there is a co-renter. The statute is designed to allow four important types of documents to be found and retrieved that are of importance after an individual’s death, so it is limited in terms of what can be removed and how and by whom. Let’s start with the “who” first. The bank can permit whoever is named in a court order served upon the bank that authorizes access to the box, to do the search. In most instances, there won’t be a court order until a probate or administration of estate has been initiated. At that point, it will be the court order that appoints the personal representative (executor or administrator) of the estate that will provide you with the necessary authority. Often, however, there is a need to get these documents before there can be an estate proceeding, or in circumstances where there is not going to be any estate proceeding. When you don’t get a court order, the statute provides alternatives. It allows the spouse, a parent, an adult descendant (remember, descendants go down the family tree– children, grandchildren, great-grandchildren, whereas ancestors go up – parents, grandparents, etc.), or a person who is named as an executor in a copy of a purported will produced by the person. (That last one means if someone has what looks and smells like a valid will of the decedent and that document says they want Person X to be appointed executor, then Person X can do the search procedure in Section 1308, even though a court has not yet accepted the document as the last will and testament of the dead guy and has not appointed Person X to do anything.) What if multiple show up? You could let them all in for the search, presumably. The statute doesn’t speak to that situation, but it does place some safeguards in place against shenanigans with what is found. Those safeguards are the reason this is not a scary scenario for the bank.

Under Section 1308, there are only four documents that can be searched for and dealt with – and they must all relate to the decedent. If it is a joint box and the documents relate to the other renter, leave them alone! The four documents of the decedent that are to be searched for are as follows:

1. A document that purports to b a will of the decedent;

2. A deed to a burial plot (or burial instructions);

3. Any document purporting to be an insurance policy on the life on the decedent;

4. Any trust document wherein the decedent was the grantor.

The search procedure needs to be performed in the presence of an officer of the bank. That’s a requirement of the statute. The other important aspect of the statute is the part about what is to be done with the above documents if they are found.
If a possible will of the deceased renter is found, the bank can send it to the court in the county of the decedent’s residence that would have jurisdiction over a probate, or the bank can give the purported will to the person doing the search – but in that instance the bank is required to retain a copy. The legislature wisely put this safeguard in so that if the person doing the search doesn’t like the provisions of the will, he can’t secretly destroy it and deny its existence. Smart!

If a life insurance policy is found, it is to be given to the beneficiary named therein. Again, the legislature’s goal was to make sure the right thing was done with it. If Larry’s spouse does the search procedure after death and finds a life insurance policy on Larry naming his kid from a prior marriage as the beneficiary, giving it to the spouse might lead to the beneficiary not even knowing about the policy.

If a deed to a burial plot or burial instructions are unearthed from the box, they can be given to the person performing the search. Not much tomfoolery is likely to occur with those (although the cynic in me could certainly see someone cremating an individual who would prefer another disposition, and vice versa.)

If a trust document is found wherein the decedent appears to be the grantor, the bank can release it to the person performing the search, but the bank must retain a copy. The legislature undoubtedly did this for the same reason they put restrictions on releasing the will.

This section of the law needs a little cleanup, because it contains an outdated reference to a law that used to require freezing the box after the renter’s death, making an inventory, and reporting it to the Tax Commission. That section of the law was modified back in the 90s to remove the inventory, but the section of Title 68 that it refers to that appears to require reporting (68 O.S. 812) was repealed. Reporting is no longer required, but you wouldn’t know that if all you did was look at subsection D of Section 1308 of the Banking Code. Aren’t you glad you know better now?

Option two for accessing the contents of the safe deposit box is under Section 1301.2 of the State Banking Code. That section allows a renter of a box to grant authorization for one or more persons to have access to the safe deposit box upon the death of the renter. If someone comes in to gain access to the box under that section of the law, they will need to provide the following:

a. A copy of the authorization executed by the renter prior to his death. For it to be valid, it would have to say “I hereby authorize access to safe deposit box (number or other identification) at (name of financial institution) upon my death to (name of person).” The form must have been signed and dated by the lessee, and the signature of the lessee has to have been notarized.

b. The person with the authorization must then give the bank an affidavit that states that the last surviving lessee of the safe deposit box has died; that the person providing the affidavit is the same person named in the authorization, a copy of which must be attached to the affidavit; that the authorization has not been revoked; and that the affiant believes that no estate proceeding will be commenced with respect to the estate of the lessee. Those four conditions must exist and be attested to in the affidavit in order for the bank to be able to allow access to the box and not face possible liability for doing so.

Section 1301.2 also refers to 68 O.S. 812 (the Tax Commission reporting requirement statute that doesn’t exist anymore). You can ignore that. What is to stop someone from fraudulently using an affidavit to access a box? Your procedures should include comparing the signature on the authorization with the signature you have on file for the customer and being attuned to any clues that might lead you to conclude that the supposedly authorized person is trying to con you. Realize that you have no idea what “treasures” may be in the safe deposit box and be very sure of the facts before you allow access. Keep in mind that this authorization only works when there is just one renter and he is deceased, or if there were multiple renters, all are deceased and this one who has authorized access was the last surviving lessee of the box and is now deceased. The statute is very clear. It says “Under no circumstances shall access be granted until all lessees of a safe deposit box are deceased.” Your bank has protection when you act properly under this statute. The law says “Any financial institution that provides access to a safe deposit box under provisions of this section shall be discharged from all criminal or civil liability for doing so.”

Option three for accessing contents of a safe deposit box is under Section 1303 of the State Banking Code. It allows access by any one or more of the persons acting as executors or administrators of the estate of the decedent. Don’t take a person’s word for it. Require a copy of the court order appointing the person as executor or administrator. The statute also says you can allow such individuals to have access to the box and remove the contents, but you must “obtain proper receipt.” It would be nice if the law explained what was contemplated by such a receipt, but it simply doesn’t. Your internal policy should specify what you will require as a “receipt” and then you will need to make sure you obtain it.

Option four for safe deposit matters is a bit hidden because it is inexplicably stuck over in paragraph A(2) of Section 906 of the State Banking Code. Section 906 is undoubtedly familiar to you because it is the section that allows you to obtain an affidavit of heirship on a deposit account of a decedent in a circumstance where there is $20,000 or less in single ownership accounts in the aggregate, with no POD beneficiary and the person did not leave a will. Based upon the receipt of a proper affidavit of heirship, you can release the funds to the heirs. Paragraph A(2) was added in 2012 and it deals with the safe deposit box of a decedent who was the sole renter, or last renter to die. It permits the box contents to be released to heirs if the procedure in the statutes (described in one of our Legal Briefs columns in 2012) is followed – even in some instances where the decedent left a will. You will want to review the statute, if you haven’t done so already.

So many times over the years I have gotten calls that have gone like this. “Our customer, Rachel, died. Heidi had a Power of Attorney from Rachel, so Heidi wants us to set up an estate account and let her sign on it.” Not happenin’, people. No can do. Tell Heidi to take a hike. When an individual dies, the authority the individual has granted to others to act as an agent on his behalf also dies. If Phil executed a power of attorney to Jane and Phil dies, Jane’s authority under the power of attorney ends. Any assets Phil owned at the time of his death that are not subject to disposition via POD designations, joint tenancy with right of survivorship, or other direct disposition, now belong to Phil’s estate. Only the representative of the estate, duly appointed by a court of competent jurisdiction, can deal with estate property (with the exception of the Section 906 procedures mentioned above). Other examples of agents that lose power upon the death of the person they are acting for include:

• Authorized signers
• Deputies on safe deposit boxes
• Guardians
• Conservators
• Social Security Representative Payees

Back to the Section 906 procedure for deposit accounts or safe deposit box content distribution for a minute. You might wonder how you are supposed to determine who all the heirs are. Not your job. That’s what those affidavits are for. An affidavit is a legal document. It is a statement made under oath, signed before a notary, and it carries penalties of perjury. Obviously, if someone brings in an affidavit and says they are Howie’s only heir – and you know they’re lying, your best course of action is to not give credence to the clearly false affidavit. But there is no need to do genealogy. The statute says, in paragraph B, “Receipt by the bank or credit union of the affidavit described in subsection A of this section shall be a valid and sufficient release and discharge to the bank or credit union for any transfer of deposits or contents made in good-faith reliance on the affidavit and shall serve to discharge the bank or credit union from liability as to any other party, including any heir, legatee, devisee, creditor or other person having rights or claims to funds or property of the decedent, and include a discharge of the bank or credit union from liability for any estate, inheritance or other taxes which may be due the state from the estate or as a result of the transfer.” Note the reference to the need for you to have good faith reliance on the affidavit. You can’t have good faith reliance if you know the facts contained therein to be untrue.

What really guards against people lying on the affidavit, however, is the prospect of the consequences they can suffer. Paragraph C of Section 906 provides jail time and a possible fine, plus restitution, saying “Any person who knowingly submits and signs a false affidavit as provided in this section shall be fined not more than Three Thousand Dollars ($3,000.00) or imprisoned for not more than six (6) months, or both. Restitution of the amount fraudulently attained shall be made to the rightful beneficiary by the guilty person.”

What about deposits that come in after the customer’s death? If no estate proceeding has been commenced and the individual had a sole ownership account with no POD, the funds can be placed into that account, which should now have a “Deceased” designation after the individual’s name. If an estate proceeding has been initiated, the personal representative (executor or administrator) of the estate can negotiate the item and deposit it into the estate account.

When there is a trust, the name of the trust does not change after the death of the grantor – unless the trust document says it does. For example, if you have the Abby and Peter Smith Revocable Living Trust, where Abby and Peter are the grantors and Abby dies, the name of the trust remains the same, unless the trust says that upon Abby’s death it is to be renamed (or upon Peter’s death it is to be renamed). In some instances, upon the death of one of the grantors, the trust will end and its assets will automatically be transferred into a different trust. All kinds of twists and turns can occur for purposes of avoiding certain taxes.

New UTMA Amendment

By Mary Beth Guard
Does this sound familiar? Your bank has an account that was established for a minor under the Uniform Transfer to Minors Act. One day, the kid shows up and he’s not a kid any more – he’s an adult. And he wants his money. Since he has reached the age for release, that’s appropriate. The problem is, it’s the custodian’s duty to give him the funds and the custodian has been ignoring the request. Your bank is stuck right in the big middle of an ugly situation. The more money is in the account, the uglier it is. This year, the OBA went to the legislature and secured authors for a piece of legislation to wire around the problem. Adrian Beverage skillfully navigated the legislative canals to ensure the bill, HB 1772, was passed by the legislature, signed by the governor, and it will become law November 1, 2015.

Once the change in the law goes into effect, if the custodian does not make a timely transfer of the property to the minor, there is a way to get around the obstacle. The minor may ask you, as the account-holding institution, to intervene by giving you a signed, dated letter (or similar document) that states that the minor has reached the age for release and has asked the custodian to distribute the funds and the custodian has refused to do so. With that statement in hand, you can then send a written demand to the custodian demanding a release of the funds in the account to the minor, and if the custodian doesn’t comply within 30 days of the date of your demand, you can close the account, pay the funds to the minor – and the statute protects you from liability or recourse from any parties. Dilemma solved!