- What to say and not say
- Dead beneficiaries
- Dead joint tenants
- Funds belong to an estate
- Watch your fees
What to say or not say
By Mary Beth Guard
Last summer, while on a trip to Indiana, I got an “urgent” call forwarded from my home phone to my cell phone from a large money center bank that we had a credit card account with. The stressed-sounding individual said that the bank did not have all my personal identifying information and my card privileges would be terminated unless I went in person to one of the bank’s branches and presented acceptable ID and supplied additional information.
Hmmmmmm. The nearest branch of this bank was at least 200 miles away from where I was at the time, so a little visit just wasn’t going to happen. But here’s the thing. We had opened the credit card account in 1987 with a different financial institution. My husband was the accountholder and I merely had user privileges on a convenience card on the account. A number of years ago, the credit card portfolio of the original issuer was acquired by the bank calling me. We had always paid the balance in full each month by the payment due date and at the time I received their phone call, not only was there no outstanding balance, but we hadn’t used the card in close to six months.
I will admit, I blew off the phone call and didn’t give it another thought until we got back home to Oklahoma. When we returned from Indiana, there was a large envelope with serious paperwork in it, all marked URGENT, all indicating that if I did not get myself to a branch of their bank somewhere with identifying documents in the very near future, they would close out the credit card account. Yes, I ignored that, too.
Another phone call followed. The bank’s representative sounded so desperate and exasperated that I imagined him being hooked up to electrodes controlled by some lunatic that would sizzle and burn the bank’s rep if I didn’t immediately capitulate to his request.
Color me curious. I had to know what prompted the crazy calls. Why, after all those years, would the bank suddenly decide they needed to get to know me better? With thirty years of usage history and payments, their neural network software could easily construct a profile of me, just based upon my spending history, and the databases to which they had access would fill in the blanks. I had questions.
The next time the dude called, I went into interrogation mode. “Why do you need more identifying information on me?” I asked. “Because we don’t have it,” he responded. “Well, that’s because 30+ years ago when my husband designated me as an individual he wanted to have a card on his account, you didn’t request or require detailed information on me.” “Yes,” he said, “That is true, but now we need that information.”
“Need.” That is a special word (one that my husband sometimes claims I don’t know the meaning of – but that’s another story). So, the bank “needs” that information. Wow! Who knew?! I had more questions.
“So, why do you need the information?” The guy got all serious as he attempted to answer and he did something one should never do (unless, of course, it is true): he attempted to justify his actions by saying that they were required by law. Oops. He overplayed his hand as he told me in a very authoritative-sounding voice that “the recently passed USA PATRIOT Act required all financial institutions to go back and review their records to ensure they had complete, up-to-date identifying information on all of their accountholders.”
I picked the low-hanging fruit first, pointing out that I wasn’t an actual accountholder, but merely an authorized user on the account. It didn’t matter, he insisted. I was viewed as a “customer” and they needed the information.
So, I moved on. “About this ‘recently passed USA PATRIOT Act,’ wasn’t that law actually enacted around 2002?” “Well, I’m not sure, that could be right – but a new rule on beneficial ownership requires us to get additional information.” Okay, he was really stepping in it at that point.
“Yeah. That beneficial ownership rule requires you to obtain information on the beneficial owners of certain legal entities. This is a consumer account. No entities are involved. How does that rule come into play?” I queried. “And on existing customers, what is the trigger for pursuing additional information?”
“Lady, I cannot take the time to educate you about all the laws and rules our bank has to comply with. Just let me assure you, we must obtain this information and you must present your drivers license at one of our branches.” [Those of you who know I have never had a drivers license are chuckling at this point. Those of you who have attended one of my new accounts programs are replaying in your minds the part where I talk about the fact that not everyone has a drivers license, whether due to a disability, lack of desire (or, in my case, knowing I would be really bad at being behind the wheel of a motor vehicle), thus the proper thing to say when CIPing a customer via the documentary verification method is “We will need to see acceptable ID, such as a drivers license, state ID, passport, or similar unexpired, government issued photo ID.”]
Okay, if he didn’t have time to educate ME about the laws and rules, perhaps I should take the time to educate him? Naaa. Life’s too short to provide free clues to the clueless.
Here is the bottom line: The bank had decided to require more information than any law or regulation actually required them to obtain and they were doing so without a specific regulatory trigger. It is certainly within the bank’s right to determine what it wants to know about its customers and it can seek that information at any time, but it needs to couch the request properly as being driven by the bank – not as being crammed down the bank’s throat by the government. When you make an assertion to the wrong person that a statute or a rule mandates something, someone is going to call you out on it and you’re going to lose all credibility.
He could have said “Our bank is working hard and going beyond what many other banks do In order to protect accounts against fraud or abuse and to fight terrorism. In connection with that effort, the bank is taking steps to ensure it knows who is really using its products and services. In any instance where we don’t find complete identifying information on a customer, we are working to address that. Our bank wants to be able to say that it knows the true identity of each and every customer, so that means going back to accounts established when the standards for identity verification were minimal and working to bring the information in our records up to current standards for each customer.”
Employees should know, for any customer requirement or limitation, what the source is: law, regulation, policy, generally accepted banking practice – and should be careful not to misstate the origin.
There are various times when specific things should be said:
– When a safe deposit box is being rented, the bank employee should say “You will want to read through your safe deposit box rental agreement so that you understand your rights and responsibilities. Also, because the contents of the box are known only to you, you may wish to talk to your insurance agent about obtaining insurance on the contents of your box.
– When a customer who has had an individual account appears to want to add someone to it and make it a joint account, it would be ideal for the bank employee to first have an opportunity to speak to the individual account owner alone (outside the presence of the person who is going to be added) to ensure they understand the ramifications of bringing someone on as a joint owner. The bank employee could say “There are two options for adding someone to your account. Let me explain the differences so you can decide which alternative best meets your needs. You could add Sydney as an authorized signer. If you put him on as an authorized signer, he is regarded as your agent and his transactions on the account should be for your benefit. He would not be an owner of the account and could not use it for his personal banking business. For example, he should not be allowed to deposit items made payable to him into the account. If we receive a garnishment or levy relating to Sydney’s debts, funds from the account would not be sent to those creditors because the funds would be deemed to belong to you – not to Sydney. If you wanted the funds in your account to pass to Sydney upon your death, you could designate him (and whomever else you desire) as Pay on Death beneficiar(y)ies.” Then the employee would go on to explain joint ownership. “If you instead make Sydney a joint owner, he will have co-equal rights to you on the account. It will legally be treated as his account just as much as it is considered yours. He would not be bound to act for your benefit. He could act for his own benefit and can use the account for any lawful purpose. He can make deposits of checks payable to him, he can have direct deposits and can set up auto debits. Once you name him a joint owner, you cannot remove him. To sever the joint account relationship, you would have to close the account and open a new one in just your name.” I recommend this “eyes wide open” foundation to informed consent because of the many scenarios we have dealt with over the years where a customer thinks it’s “their account” and the joint owner is just on there to do their bidding, not realizing that once it gets made a joint account, all that is out the window.
There are other times when certain things should NOT be said. Never commit the bank to a specific course of action until all the facts are known. For example, a wonderful customer comes in all upset saying that a forged check for $12,000 was paid on their account. At that point, when that is all you know, you need to simply say “I am so sorry to hear this. We will look into this right away.” If you ordinarily would think “great customer, forged check, we need to return their money” – not so fast. When you begin your investigation, you may learn the forged check was paid over a year ago, so your bank would have no liability because of the one year bar. You may very well make a business decision to give the money back anyway, but legally you would not be required to, so the factors that go into your decision-making will be different.
Be sympathetic but absolutely noncommittal in any situation where you need to dig for facts before liability can be ascertained – such as where a customer claims unauthorized ACH transactions occurred, a payment wasn’t credited properly on a loan account, they were charged fees they should not have been charged, their deposit was misencoded, an endorsement was bogus – whatever. If you make any kind of statement that could be misconstrued by the customer as meaning that you will take care of their loss, you are going to have a reputation issue to deal with if you decide not to do so.
By Mary Beth Guard
If your bank is proactive about asking customers whether they wish to designate one or more POD beneficiaries (and I certainly hope you are, because it is an important option under Oklahoma law for allowing funds in a deposit account to pass without going through probate), I would wager a guess that lurking in your deposit accounts are POD beneficiaries that are no longer living, and that is not a good thing. Here’s why.
Section 901 of the State Banking Code (6 O.S. §901) provides the authority for designation of pay on death beneficiaries on deposit accounts held by individuals. It provides various choices:
1. The accountholder can designate one or more individuals as beneficiaries;
2. The accountholder can designate one or more trusts as beneficiaries;
3. The accountholder can designate one or more charitable organizations (i.e., non-profit organizations that are tax exempt under IRS Code Section 501(c)(3) as beneficiaries;
4. The accountholder can designate a mix of eligible beneficiaries – for example, naming 7 individuals, two charitable entities, and a trust. Whenever there are multiple POD beneficiaries on an account, each receives an equal share.
Under paragraph (B)(1) of Section 901, when a deposit has been set up as POD, on the death of the account owner the funds are to be paid to the designated beneficiaries, BUT if an individual named beneficiary is not living, the funds must go to the estate of the named beneficiary. Just think about that. The reason your customer set up POD beneficiaries in the first place was so the funds in the account could pass to whomever they designate without having to go through court. Easy, quick, no cost. But if a beneficiary predeceases the account owner, that throws a giant crimp in the works because that beneficiary’s share will need to go to the beneficiary’s estate. We’ve had some circumstances where the beneficiary predeceased the account owner by twenty years and the estate proceeding for the beneficiary had been concluded many years earlier. In other situations, there was never an estate proceeding. So, figuring out how to get the funds out of the bank and into the hands of the rightful parties becomes a real challenge.
How do you avoid this dilemma? Here are some possible courses of action:
Any time you become aware that an individual named as a POD beneficiary on one of your customer’s accounts has passed away, send a letter to your customer (or talk to the customer in person or by phone) to say: “We were sorry to hear of Jack’s passing and want to convey our condolences. You know, Jack is a pay on death beneficiary on your account. If you don’t change that, when you die the funds will have to go to Jack’s estate and may require a court proceeding, which is probably not what you want. We would be happy to assist you in updating your beneficiary designations.”
Use a statement stuffer (or online banking message) to say: “Have you updated your Pay on Death Beneficiary designations? Under Oklahoma law, if a beneficiary dies before the accountholder, the funds must go to the beneficiary’s estate. To avoid that, update your beneficiaries to remove any who have passed away and add one or more new beneficiaries of your choice.”
Do a proactive review of your POD accounts to identify those that had beneficiaries designated more than ten years ago. Consider making phone calls or sending letters or putting a message on the system for a CSR to chat with the customer next time they are in the lobby or branch to do a “welfare check” on the beneficiaries and to see if the customer wants to make any changes – even where the beneficiaries are still alive and kicking.
There is also another alternative. The statute itself provides authority to designate one primary POD beneficiary and one or more contingent beneficiaries. It says, in pertinent part:
If any named primary beneficiary is not living, the share of that beneficiary shall instead be held for or paid to the estate of that deceased beneficiary unless contingent beneficiaries have been designated by the account owner as allowed by paragraph 4 of this subsection.
3. Each P.O.D. beneficiary designated on a deposit account shall be a primary beneficiary unless specifically designated as a contingent beneficiary.
4. If there is only one primary P.O.D. beneficiary on a deposit account and that beneficiary is an individual, the account owner may designate one or more contingent beneficiaries for whom the funds shall be held or to whom the funds shall be paid if the primary beneficiary is not living when the last surviving owner of the account dies. If there is more than one primary P.O.D. beneficiary on a deposit account, contingent beneficiaries shall not be allowed on that account.
5. If the only primary P.O.D. beneficiary is not living and one or more contingent beneficiaries have been designated as allowed by paragraph 4 of this subsection, the funds shall be held for or paid to the contingent beneficiaries in equal shares, and shall not belong to the estate of the deceased primary beneficiary. If the only primary beneficiary is not living, and a contingent beneficiary or contingent beneficiaries have been designated as allowed by paragraph 4 of this subsection, but one or more designated contingent beneficiaries are also not living, the share that otherwise would belong to any deceased contingent beneficiary shall instead be held for or paid to the estate of that deceased contingent beneficiary…
7. If only one primary P.O.D. beneficiary has been designated on a deposit account, the account owner may add the following, or words of similar meaning, in the style of the account or in the account agreement: “If the designated P.O.D. beneficiary is deceased, then payable on the death of the account owner to (Name of Beneficiary), (Name of Beneficiary), and (Name of Beneficiary), as contingent beneficiaries, in equal share.”
8. Adjustments may be made in the styling, depending upon the number of owners of the account, to allow for survivorship rights, and the number of beneficiaries. It is to be understood that each beneficiary is entitled to a proportionate share of the account proceeds only after the death of the last surviving account owner, and after payment of account proceeds to any secured party with a valid security interest in the account. In the event of the death of a beneficiary prior to the death of the account owner, the share of that beneficiary shall go to the estate of that beneficiary. Unless one or more contingent beneficiaries have been designated to take the place of that beneficiary as provided in paragraph 4 of this subsection. All designated primary P.O.D. beneficiaries shall have equal shares. All designated contingent P.O.D. beneficiaries shall have equal shares as if the sole primary beneficiary is deceased.
Let’s look at an example of how the primary/contingent thing would work. Let’s say Shirley wants to put her sister Wanda on her account as POD beneficiary. Shirley and Wanda are each in their mid-80s and while Shirley is in great shape, Wanda is a big ball of medical issues and it’s not likely she will live to see too many more trips around the sun. Knowing all this (and I dare say some of you community bankers could practically complete genealogical charts and medical histories on some of your customers because you get to know them so well!), when Shirley wants to designate Wanda as her POD beneficiary, she could make Wanda the primary beneficiary and name contingent beneficiaries. That way, if Wanda dies before Shirley does, Shirley doesn’t have to come in and change anything. The contingent beneficiaries will click into first place.
If it were me, any time a customer wants to designate just one beneficiary, I would gently urge them to also name contingent beneficiaries at the same time.
Think about the many times you have dealt with accounts of deceased customers. In instances where the customer had carefully chosen and kept updated POD beneficiaries, there is a good feeling knowing that the funds are able to pass, hassle-free, to the customer’s chosen recipients.
Dead joint tenants
By Mary Beth Guard
Want to see me cringe? Tell me something like “Lola and Wayne Flintner had a joint account. Wayne died. We’ve kept the joint account open so Lola can deposit checks payable jointly, and she can also deposit any checks payable to Wayne.” Can you hear me loudly moaning “NOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOO!”?
“What is the problem?” you might ask, adding, “We’ve done it this way for years.”
Deposit accounts are governed by law and by the terms of the deposit account agreement. When you have an account that is joint tenancy with right of survivorship and one of the two joint owners passes away, the joint tenancy terminates by virtue of the contract terms. The terms specify that if one of the joint owners dies, the account and the funds in it automatically become the property of the surviving joint owners. So, Wayne dies. The joint ownership of the account ceases. It is now an individual account owned solely by Lola.
“Yes,” you tell me, “We realize it will become Lola’s account, but we hold off on having her sign a new signature card because we know there are checks she wants to deposit.”
Let me be perfectly clear. It is not going to “become” Lola’s individual account at a future point in time. It became an individual account owned by Lola as soon as Wayne died.
“But the signature card is marked ‘joint account’ and both their names are on it!” you exclaim.
“Yes,” I reply, but under contract law and the terms of the deposit agreement, it is now a sole ownership account. That is what all the parties – the bank, Lola, Wayne – agreed to at the account inception. That’s how that account “works” from a legal standpoint.
If there is a check payable to Wayne that was issued after he died or even one issued before his death that simply didn’t get deposited while he was alive, the check now belongs to Wayne’s estate. And if a check arrives and is jointly payable to Wayne and Lola, his ghost can’t endorse it and it is therefore non-negotiable. It needs to either be reissued, or Lola needs to endorse it over to Wayne’s estate and the representative for Wayne’s estate needs to handle it.
What’s the harm? (That’s what you’re thinking, right? You’re thinking Wayne would want Lola to get the money.) The harm is that you are converting the check. You are taking funds that belong (in whole or in part, depending upon whether the check is payable to Wayne individually or jointly) to Wayne’s estate and you are doing posthumous estate planning, deciding for yourself that you are going to divert the funds from the estate and give them to Lola. You don’t have the legal right to do so and you could face liability.
Who would care?
Creditor’s of Wayne’s estate. They stand first in line to make claims against any assets.
If there are no creditors (or if there are plenty of other assets to satisfy creditors), then the beneficiaries under Wayne’s will (which may or may not include Lola) would be next in line.
If Wayne didn’t leave a will, his heirs would be entitled to the assets in his estate, after payment of creditors.
Funds belonging to an estate
by Mary Beth Guard
My aunt passed away recently and a check payable to her arrived at my cousin’s house a few weeks later. Her will named my cousin executor, but because she had already disposed of the bulk of her assets through other means (joint tenancy with right of survivorship, having assets in her trust, POD accounts, etc.) it did not appear that any probate was going to be necessary, so my cousin endorsed the check as “Estate of so-and-so” then signed his name, followed by “Executor.” He wanted to deposit it into his personal account.
The bank asked for copies of the court documents appointing him Executor. Of course, there were none. Not only that, if he had been the Executor and was trying to put the check into his personal account, the bank would have been on notice of breach of fiduciary duty under Section 3-307 of the Uniform Commercial Code. Correctly, the bank refused to accept the deposit. Not surprisingly, my cousin was infuriated. The way he looked at it, there were no creditors, he and his sister were to receive everything via his mother’s stated wishes in her will. Once he understood the reasoning, he still wasn’t happy, but he was better able to accept it.
I wish I could say that he managed to get the check reissued, but the reality is that he sent to his sister for deposit into the small bank in Kansas where she does business. She signed underneath his endorsement and no one raised any objection to sticking it into her account. Argh. That bank obviously was either oblivious to the risk or was willing to take the risk, due to the small amount of the check, the large balance in the account, and the long-term customer relationship. I just rolled my eyes because I know when the next one comes in and my cousin strikes out when trying to deposit it, we will hear the old familiar refrain: “But my sister’s bank accepted one like it, why can’t you?” Now you know why.
Watch your fees
By Mary Beth Guard
When is the last time you reviewed the fees your bank charges? It’s time to take a close look. The number one complaint from customers these days is excessive or hidden fees. I receive a number of different email reports of current litigation and court decisions and I’m seeing a definite trend of lawsuits, class action and otherwise, from consumer — as well as even a few commercial customers, alleging that fees were wrongly charged. In some instances, the plaintiffs assert the fees were not contracted for or were not properly disclosed. In others, they allege the fees are onerous. Start your review and next time we’ll examine specific problematic fee practices.