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Funds in trust for granddaughters – bank failure to open trust accounts – non-transferable cheques payable to trust paid into ordinary accounts – unauthorized withdrawal
In this case the complaint was made by Mr P, an elderly man who wanted to provide for his three granddaughters’ tertiary education.
He decided to set up three trust accounts, one for each granddaughter. By May 2005 each of the two older granddaughters had $25,000 in her account, while the youngest had $15,000 in hers.
The trust accounts were originally with the Public Trust, with Mr P as the sole trustee, but in 2004 Mr P decided to move the funds to a bank account with a fixed interest rate. All documentation relating to the trusts and the new bank account highlighted Mr P’s wish to fund his granddaughters’ tertiary education.
In May 2004 Mr P, in the company of his son and daughter-in-law who were the parents of all three granddaughters, met with a bank representative to open new bank accounts for the three trusts. The Public Trust had issued three cheques to be paid into the new accounts. Each cheque was crossed, with the words “not transferable” written between vertical parallel lines. Each cheque was issued to one granddaughter as follows: “Pay to the order of [name of granddaughter] Education Trust” (the name of the trust has been removed for reasons of confidentiality).
Although much of what happened in the meeting cannot be reconstructed with certainty, three ordinary bank accounts were opened, one for each granddaughter. They were not trust accounts. Mr P, and his son and his daughter-in-law were designated as the three signatories to the accounts, with the approval of any two being required for withdrawals. Withdrawals from the Public Trust accounts had been authorised by the sole trustee only on receipt of invoices for education expenses.
Early in 2005 Mr P’s son and daughter-in-law found themselves in financial difficulty. In April and May of that year the daughter-in-law made two withdrawals totalling $15,000 from their youngest daughter’s account, and subsequently closed it. This occurred without the knowledge of Mr P.
In February 2006 Mr P discovered that the account had been closed, with all funds having been withdrawn from it, and complained to the bank. When he was not satisfied with its explanation, he complained to my office.
The bank had explained that, although only one signature, that of the daughter-in-law, had been on the withdrawal slip, they had contacted the son, who stated that he had given power of attorney to his wife, and agreed with the action she was taking. The bank had no copy of this power of attorney, and no evidence that it had sighted it.
It was apparent that, as the three Public Trust cheques had been marked “not transferable”, they could only be paid into three trust accounts (one for each granddaughter). This had not been noted by the bank representative who met with Mr P and his family.
After some discussion the bank accepted that it had made two errors leading to two unauthorised withdrawals totalling $15,413.07. The first error was at the account opening stage, when each cheque should have been paid into a dedicated trust account. The second error occurred when the payments were made to the daughter-in-law on the basis of her signature alone.
This complaint was consequently settled when the bank refunded the trust account with $15,413.07, in addition to the interest that would have accrued, indicating that it would seek to recover the funds from the son and daughter-in-law. The bank also paid Mr K $500 for the inconvenience and stress that he had suffered.