WHO IS AFRAID OF PAYABLE ON DEATH (POD)?

SOFT FINANCE

Barring other developments, the Central Bank of Nigeria would make good on its decision to mop up about N500 billion in unclaimed balances in over 59.7 million accounts in commercial banks in the country.

According to the guidelines issued by the CBN about three weeks ago in a circular signed by the Director of Financial Policy and Regulation Department of the apex bank, Chibuzor Efobi, such accounts which have received no deposits or withdrawals for upwards of 10 years are classified as dormant accounts.

The guideline, which took immediate effect, instructed banks and Other Financial Institutions (OFIs) to transfer all unclaimed balances in the said accounts into an Unclaimed Balances Trust Fund (UBTF) pool account which will be domiciled at the CBN. The transferred funds, according to the CBN, would then be invested in Treasury Bills.

The CBN listed components of the eligible dormant accounts and unclaimed balances as current, savings and term deposits, domiciliary accounts, prepaid card accounts, unclaimed salaries and wages, proceeds of stale local and foreign currency drafts, and judgment debts that have not been claimed by the creditor.

FRET

While the CBN has attributed its move on a desire to ensure that such unclaimed monies in dormant accounts are put to good use and to also enhance the growth of the economy, the content of the guidelines has triggered anxiety in certain quarters. This is anchored on the suspicion that the CBN is using the guidelines to increase the pool of easy money accessible to the Federal Government, which has been combing everywhere to borrow money.

Interestingly, the Federal Government is also said to be interested in how it could have access to the rising stock of unclaimed dividends, domiciled with the Central Securities Clearing System, which increased from about N158.4 billion in 2019 to N170 billion in 2021 and N180 billion in 2022.

POD, FASTER ACCESS TO THE ACCOUNTS OF A DECEASED RELATIVE

There are indications that a sizable percentage of the dormant bank accounts belong to individuals who died without leaving clear arrangements on how relatives and other beneficiaries could easily access the funds in their accounts.

In a video, which has since gone viral, a young individual came up with what he described as a simple solution to the above scenario. He advises any depositor to simply approach his bankers and demand the Payable On Death (POD) form, which upon completion, would make it possible for his named beneficiary or beneficiaries to gain access to the fund in his account upon his death without going through the complexities of the probate route.

Expectedly the video has generated interest and questions with many making enquiries on how to integrate the POD option into their banking transactions.

WHAT IS A POD?

Payable on Death (POD) is defined as an arrangement between a bank and a client that designates beneficiaries to receive the client’s entire assets, triggered by the death of the client. Research has shown that most people who opt for the POD option settle for it because they want to keep their money out of probate court in the event that they pass away. Most people insist that going through the probate court to access liquid assets left by dead relatives is tortuous, complex and expensive, whereas the PODs are easy to follow and execute options.

Obtaining a POD and designating a beneficiary or beneficiaries is said to be a cost-free service “that allows for the transfer of all checking and savings accounts, security deposits, savings bonds and other deposit certificates by filling out the proper forms at your bank. The account holder needs only to notify the bank of who the beneficiary or beneficiaries should be. The bank, on its end, will give the owner of the account a beneficiary designation form called a Totten trust to fill out. The completed form gives the bank authorisation to convert the account to a POD”.

ARE PODs OPERATIONAL IN NIGERIA?

While putting this story together, I put a call through to my account officer to find out if I could obtain a POD form for integration into my account system. She responded that no such option is available in the bank. I also reached out to other banks and I received a similar response. One of them said: “We do not do POD sir, the closest is to have a simple Will that covers mutual funds, bank and pension”.

After a former Deputy Governor of the CBN corroborated the earlier respondents, I contacted the CBN’s Director of Corporate Communication, Dr Isa Abulmumin, who said: “Findings indicate that there is no such provision for now”.
Further research indicates that the POD options are popular only in US banks and in some variants too in the UK banking system. PODs used to be called a Totten Trust, which derived its name from a 1904 legal case in New York, which established the position that one person could open a bank account as a trust for another person. Most states in the US have since adopted the option.

PODS ARE AVAILABLE BUT BANKS NOT KEEN IN IMPLEMENTING
Further investigations suggest however that there are no laws restricting the banks from providing the service to a willing client but most banks are not just keen on the concept.

A high court judge who is also a private investor shared his experience with the banks on the service

“Yes I have heard of POD but From my experience as a lawyer and judge, the banks all of them honour it in the breach. In all the matters I have been involved the banks despite the POD always insist on letters of administration or will and never ever honour the POD . One of the banks is actually very notorious on this matter: the bank will never divulge the existence of PoD to the families or to the beneficiary . Never. That is why that bank holds billions of naira of depositors who have passed on and will do everything to make sure the families end up in litigation while the funds are sequestered in the vault with no interest paid”

On why such is not available in Nigeria, a banker who is also versed in estate matters, said such a simple estate concept may not be immediately and easily applicable in Nigeria due to complications that we have in the country’s estate process. He added: “There are so many ‘manifestations’ accompanying the administration of the estates of a deceased; we have seen a situation where many individuals unknown to the family of the deceased showed up with evidence as legitimate beneficiaries of the state of the deceased. And don’t forget, the government, especially the Federal Inland Revenue Services are also interested in how the money in the account of a dead person is distributed, especially if he was owing tax”.

ALTERNATIVES TO PODS?

Prince Yemisi Shyllon, a chartered engineer, stockbroker, legal practitioner and investor, suggested that in the absence of the POD, the closest way out of this reality, is to go the way of living trusts instead of relying on the writing of a Will. According to him, a POD option can actually be integrated into a living trust arrangement.

BETWEEN A WILL AND A LIVING TRUST

Prince Shyllon explained that “both the Living Trust and a Will are legal documents created to guide how you want your estate to be managed. The Will comes into effect when you are dead, while the Living Trust is operational when you are alive and also goes into effect when you are dead.

“Living Trust means that ownership of assets is put into Living Trusts via declarations of trust, with regulations and guidelines, documented in the trust deeds, which allows an asset owner to control his/her assets when he is alive but cannot control them when he is dead.”

He outlined the major differences between a Living Trust and a Will as follows: “Living Trusts are so described you can continue to do whatever you wish with your assets, once you have declared who your trustee is. You then transfer the ownership and the management of your assets to your trustee. But when you are dead, the trustee takes over the management and runs it according to the guidelines you mutually agreed to when you were alive. The company that then manages the assets is called a trustee.”

MAJOR ADVANTAGES

Experts on estates explain that Living Trusts do not need to go to probate before the distribution of the assets of valid Living Trusts to beneficiaries. They affirm that probates can be very expensive and public, with everything done in the open, whereas Living Trusts do not have to go through probate.

The trustees of valid Living Trusts can distribute the assets of the deceased to the named beneficiaries in trusts while avoiding excessive taxes and the lengthy processes of probate.

With Living Trusts grantees usually name their trustees who then hold assets on behalf of grantors, according to the rules and directions of grantors for the benefit of trust beneficiaries.

WHY LEGAL PROBATE IS STILL BETTER

Dr Gani Murtala Murgan, CEO of G.M. Murgan & Co., legal practitioners & law, research trainers and publisher, law & political commentary global, believes that the legal probate system is better than the bank’s Payable on Death (POD).

According to him: “From experience in cases treated, it is observed that the probate process has better advantages than the POD in the following ways:

“The legal probate process does not take time except where there is controversy within the family over the choice of family representative”.
“Also, legal probate provides room for the deceased’s money to extend to many beneficiaries of the deceased like providing for other children of the deceased in a divorced marriage instead of limiting it to the benefits to the children and wife in the current marriage”.

“Importantly, the practice of legal probate contributes more to upholding peace and security of life of the money owner and Nigeria as a whole, as it reduces incidents of kidnapping, food poisoning, use of negative spiritual forces and other clandestine devices that may be employed to eliminate the husband (money owner) by the wife as soon as she finds that the husband has successfully registered her name as the sole authority to collect the money under the Payable On Death arrangement”.
“Further, it is heartening to know that legal probate is not an expensive process as wrongly communicated above”.

“Based on the above, it is safe to conclude that the legal probate system is better than the POD system. It is, therefore, recommended that interested persons should get in touch with qualified legal practitioners who will not only complete the process for them in no time but provide other necessary legal support that will help in solving their problem on recovery of the deceased person’s money from banks”.