The following is an article reprinted with permission from the Fall 2005 edition of The WWR Letter:
Account Card Audit
By: Robert Rutkowski, Esquire
Perhaps you have been faced with a scenario like this one before. Lorna Loaded, a wealthy widow who is a well-loved member of your credit union, passes away after 95 years of health and happiness. Lorna always believed in saving money and had $100,000 in her share account and another $100,000 in an IRA. After a week or so, Stanley Spenthrift, Norbert Neerdowell and Ellie Executrix show up in your lobby and try to claim Lorna’s money. Stanley claims that the funds were in a trust and that he is the trustee. Norbert claims that he is Lorna’s sole beneficiary and that you should pay him immediately. Ellie claims Lorna’s estate is entitled to the funds.
“Not to worry”, you say, “We’ll just look at the account cards and distribute the funds according to what is written on the cards.” You pull Lorna’s file and you see that the card was last changed in 1984. Lorna’s eighth husband (now deceased) is listed as a co-owner. You figure the IRA is in better shape. You pull the card on the IRA (dated August 30, 1990) and you notice that it clearly indicates Norbert is the beneficiary. However, there is also a letter in the file written by Lorna, which is dated January 1, 2000, instructing the credit union to change the IRA beneficiary to the Werner Charity for Wayward Bunnies. Additionally, you find a trust agreement with a cover letter from Stanley (dated March 2005) along with a power of attorney from Lorna to Stanley, telling you to put all Lorna’s accounts into the attached trust.
You realize you have a problem. You turn to your policies and procedures for advice. They tell you that all account changes must be in writing and signed by the account owner. Moreover, each account change must be made on an official credit union account card for the change to be effective.
You look at the documents again. The account card from 1984 had a co-owner but he pre-deceased Lorna so he is out of the picture. Normally, then, Lorna’s estate would get the money on the share account. However, there is evidence that a trust was created and that there was some attempt to place the funds in the trust. If the credit union pays the estate, Stanley may sue the credit union, despite the credit union’s policy to require the changes be written on a credit union card, alleging that the intent was for the funds to go into the trust. If the credit union pays the trust, it faces litigation from the estate.
With respect to the IRA, Stanley might also want that money, but IRAs cannot be owned by trust accounts, only individuals. Norbert was the original beneficiary, but the Werner Charity might come forward and claim a right to the funds because of Lorna’s letter, despite no change being made to the account on the account card.
The lesson here is: audit your account cards. Pick a balance amount that you can tolerate to lose whether it is $5 or $20,000 and go through every account you have with a balance above this amount. Pretend as though the member has died. If you can readily determine whom to pay from the account documents, you are in good shape. If you cannot, call the member in and fix it. Had this account dating back more than 20 years been audited, Lorna could have been made to come in and sign documents that comported with the credit union’s policy. This situation is much easier to correct while the member is still alive rather then when his or her would-be heirs are standing in your lobby. Where there is money involved, there is always the chance for litigation, but if you have your documents in order, a favorable result is much more likely.
Robert Rutkowski is a Partner managing WWR’s Credit Union department and is located in the Brooklyn Heights operations center. He can be reached at (216) 739-5004 or firstname.lastname@example.org.