Fiduciary & Business Accounts

Transcription

1 Your State Association Presents New Accounts in Texas 2 Fiduciary & Business Accounts Program Materials Use this document to follow along with the webinar. This program has been pre-recorded - you will not be able to ask the speaker questions during the session. However you may submit your questions via . Thursday, September 8, 2016 Presenter: Laura Wilson Technical Support (for faster service please submit inquiries via or online): (Registration & Tech Support): - support@conferenceedge.com, Phone- (877) FOR ADDITIONAL ASSISTANCE PLEASE REFER TO OUR FAQs

2 Procedures for Submitting Questions After the program is over, you have until midnight to submit additional questions to Laura via Send your questions to In approximately 3-5 working days (it depends on the number of questions), we will you a copy of all the questions along with Laura's answers This information will also be posted on your Conference Edge account

3 New Accounts in Texas 2016 Part 2 Fiduciary and Business Accounts THIS PUBLICATION IS Not offered as legal advice SO Readers should consult with legal counsel for advice on specific fact situations. Copyrighted by Pegasus Educational Services, LLC, August No portion of it, other than any government forms it contains, can be reproduced without violating copyright laws.

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5 Pegasus Educational Services, LLC Pegasus Seminars Since 1996 Pegasus Educational Services, LLC, located in Louisville, Kentucky, has worked to provide bankers across the nation with quality programs, presentations and materials. Our goal is your success. The original founders, Laura Wilson and Ken Golliher each have worked for state bankers associations in several states and have a dedicated following of attendees in each of them. Those bankers know they are going to get the best, most current information available delivered in an easy to digest, even humorous fashion. Both prove that participating in a training session, even a compliance training session, does not have to be painful! Presenter Laura Wilson is a principal with Pegasus Educational Services, LLC. She is a gifted trainer who proves learning can be fun. Audiences routinely comment that her recollection of material content and sense of humor are unique among presenters on technical topics. Her career in training on banking related issues began in At one time she served as the regulatory compliance trainer for a $3 billion savings bank. Later, she was a senior consultant and full-time trainer for a regional consulting firm for financial institutions. She has served on the faculty of the OTS Level I Compliance School and the FDIC s Bank Operations and Compliance School for examiners. In addition to presenting seminars for seventeen state banking associations, she has been an instructor at compliance schools sponsored by the Iowa, Kentucky, Texas and Pennsylvania bankers associations. She is also a member of the American Society for Training and Development.

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7 Table of Contents Seminar Description and Purpose 1 Seminar Content Overview 2 Fiduciary Accounts Fiduciary Accounts: General Information 5 Uniform Transfer to Minors Act 8 Decedent Estates 11 Trusts Revocable and Irrevocable 14 Guardianship Estates 18 Government Fiduciaries (SSA and VA) 20 Commercial Accounts Business Accounts: General Information 24 Sole Proprietorships 30 Partnerships 33 Limited Liability Companies 35 Corporations 38 Clubs and Civic Organizations 40 New Accounts Quick Reference Chart 43

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9 Seminar Description and Purpose Introduction This seminar teaches the fundamental elements of opening and maintaining accounts for fiduciary and business customers. It focuses on proper account titles under state law; their ownership and access provisions; and the value of obtaining the required documentation. Purpose The seminar s purpose is to provide attendees with information necessary to understand and implement the bank s CIP and CDD requirements for opening fiduciary and business accounts. It also emphasizes good banking practices for use in maintaining these accounts. Goals Upon completion of this course, attendees have the tools to: implement their institution s customer on-boarding policies and procedures for fiduciary and business accounts, understand taxpayer identification number requirements for nonconsumer accounts, identify account types recognized under state law and appreciate the risks of opening accounts with nonconforming titles, obtain the appropriate general documentation for fiduciary and business accounts; and respond to depositor questions with more confidence. Commitment to Bank s CIP and Due Diligence Policies, Procedures and Processes Each bank develops its own risk-based programs. This seminar lays a foundation for compliance with your bank s policies and procedures when opening accounts for fiduciaries and businesses. It explains the available options while stressing the importance of knowing and following the requirements unique to an individual bank s programs. KNOW YOUR PROGRAM! Pegasus Educational Services, LLC - 1 -

10 Seminar Content Overview Before an account can be opened, the bank must satisfy federal requirements at account opening. Responsibilities for gathering and verifying a customer s identity, applying the Bank s Customer Due Diligence program and providing required disclosures are all driven by federal regulations. There are many federal regulations that affect account opening. They include: Law or Regulation Citation Affects Bank Secrecy Act 31 CFR Chapter X Customer Identification Program requirements, Suspicious Activity Reporting, and record retention. Internal Revenue Code 26 USC Various citations TIN certifications, nonresident alien certifications (Form W-8BEN), and backup withholding. OFAC Regulations 31 CFR 500 OFAC verification procedures Regulation CC 12 CFR 229 Required disclosure when opening transaction accounts. Note: Federal laws and regulations are available on the web at: Note: Not all of the laws and regulations listed above are covered in this program. In fact, many are only given a cursory reference. Pegasus Educational Services, LLC - 2 -

11 Seminar Content Overview State Laws State laws control ownership, survivorship, access and, in the case of business entities, proper methods of documenting the entities official actions. Texas statutes are available at: Texas Statute Citation V.T.C.A. Affects Uniform Transfers to Minors Act Property Code Chapter 141, et. Seq. holding funds for a minor Small estates Estates Code et. seq Summary administration Trusts Finance Code, certificate of trust. Guardianships Estates Code Chapter 1001, et. Seq. appointment of a guardian Assumed Business Name General Partnerships Limited Partnerships Limited Liability Company Act Business and Commerce Code Chapter 71 Business Organizations Code Chapter 152 Business Organizations Code Chapter 153 Business Organizations Code Chapter 101 type of documentation required to evidence an official act of the entity, ownership of the entity definitions and operating requirements. Corporations Business Organizations Code Chapter 21 Pegasus Educational Services, LLC - 3 -

12 Fiduciary Accounts accounts held by fiduciaries appointed by an individual, a contract, an agency, or a court to administer funds belonging to others. Pegasus Educational Services, LLC - 4 -

13 Fiduciary Accounts: General Information Fiduciary Defined A fiduciary is a person or entity awarded authority, control and responsibility for the property of a minor child, incompetent or disabled adult, or an entity (e.g. estate, trust). A power of attorney is a self-appointed fiduciary. A fiduciary has a duty to make prudent decisions regarding investments, expenditures and gifts (if applicable). The fiduciary is accountable to the court or agency granting their authority, or the individual(s) having a beneficial interest in the trust, estate or escrow account. Documenting a Fiduciary Relationship Every fiduciary relationship is evidenced by a document. In the case of a custodian under the UTMA, it is state law. In every other instance the document is from a court, agency or individual. The bank requires the document to establish the fiduciary s authority. The document must be read by a representative of the financial institution to determine the extent of the relationship. Required Documentation A fiduciary designation must have the required supporting documentation. A parent cannot claim to be his/her child s guardian without the Letters of Guardianship. A court document is required to evidence the authority of a: Guardian, Conservator, Executor or Executrix, and Administrator or Administratrix. A trustee is named in a trust document. When a trust is created by the terms of the decedent s will that portion of the will as entered into record evidences the trust and the trustee designation. A person claiming to be representative payee will have evidence of appointment from the Social Security Administration. The Veteran s Affairs Administration awards a similar fiduciary designation for the management of veteran s benefits. Pegasus Educational Services, LLC - 5 -

14 Fiduciary Accounts: General Information Required Documentation continued To act as an agent on behalf of an individual or an entity, the fiduciary must provide evidence that the authority was granted. The document might be a power of attorney (discussed earlier) or a contract for the purchase of a business or a piece of property. There is no exception for benefit or memorial funds. A person cannot award themselves control of another individual s or entity s property. Common Issues There are basic principal applicable to all fiduciary accounts. Unless the document granting authority specifically provides for it, a fiduciary cannot: name a Pay on Death beneficiary, name an authorized signer, pledge the account as collateral for a loan for themselves or the principal, and make themselves or anyone else a joint owner. In addition: only allow account information and access to the fiduciary (your contract is with the fiduciary), and the fiduciary always signs his/her name. The fiduciary s authority (Guardian, Trustee, Executor) may also be included. CFPB Publications The Consumer Financial Protection Bureau has released four easyto-understand booklets to help financial caregivers. These publications may help the bank and the customer better understand the duties of certain fiduciaries. The series, called Managing Someone Else s Money, includes guides for agents under a power of attorney, a trust, court appointment, and federal agency appointed fiduciaries. The booklets are available for download from the CFPB s website at Pegasus Educational Services, LLC - 6 -

15 Fiduciary Accounts: General Information CFPB Publications, continued Each of the publications provides general information about the duties, liabilities and authorities of a fiduciary. Details regarding the duties of a specific type of fiduciary are highlighted in the booklet designated for that particular fiduciary. The following appears in the publication designed for Government Fiduciaries, but substantially similar language appears in all four publications. Duty 3 Keep Roberto s money separate Never mix Roberto s benefit money with your own or someone else s. Mixing money makes it unclear who owns what. Confused records can get you in trouble with government agencies and law enforcement. Follow these guidelines: Separate means separate. Never deposit Roberto s money into your own or someone else s bank account or investment account. The VA fiduciary program makes an exception to this rule if you are a fiduciary for your spouse. Avoid joint accounts. If you and Roberto already have benefit money in a joint account, take his money out and put it in a new account. The box to the right shows you how to title the account and sign checks. Arrange for direct deposit of his benefits. Each publication also includes a warning to Watch out for financial exploitation, and what to do if it is suspected. A list of indicators tells the fiduciary what to look for. These signs of exploitation are also helpful to bank staff as FinCEN expects SAR filings on suspected financial abuse of the elderly. Fiduciaries are also cautioned to be on alert for signs that the senior in his/her care is the victim of a consumer scam. A matrix of common scams is included. This is also excellent information for bank staff. Pegasus Educational Services, LLC - 7 -

16 Uniform Transfers to Minors Act Accounts Overview The Uniform Transfers to Minors Act (UTMA) provides a way to legally transfer ownership of funds to a minor while at the same time prohibiting the minor s immediate access to the money. The account is owned by the minor (beneficiary), but controlled by the custodian. The custodian is able to withdraw from the account, but all funds must be used for the benefit of the minor. Note: The depositary institution is not responsible for ensuring the custodian s proper use of funds. What is required to open? Obtain the following from the custodian prior to opening: BSA Regulations Require name street address of residence, date of birth and SSN. What is required by your Bank s CIP and CDD? Your bank s CIP and CDD procedures determine additional information, number and type of identifying documents and more. This is used to verify the custodian s identity. KNOW YOUR PROGRAM! Note: The minor s SSN is obtained and used for interest reporting. Note: There is no court appointment for the custodian. A person becomes custodian under TXUTMA by assuming the responsibilities of a custodian under statute. Titling the Account The account title must include: the name of the minor/beneficiary, the words Texas Uniform Transfers to Minors Act or the abbreviation TXUTMA and the name and designation of the custodian. Example: Suzy Smith, TXUTMA, David Smith, Custodian Note: Under the statute, this account is only opened for one minor and names only one custodian. (The custodian may appoint a successor custodian to serve in the event of his or her death or incapacity.) Pegasus Educational Services, LLC - 8 -

17 Uniform Transfers to Minors Act Accounts Ownership of Funds Signing the Signature Card The minor owns the funds, but is not entitled to access to the account. The custodian signs the signature card in his/her fiduciary capacity. Example: David Smith, Custodian under TXUTMA IRS TIN Requirements Delivery of Funds to the Minor Obtain the minor s SSN. The custodian certifies the minor s SSN. It is the custodian s responsibility to deliver the funds to the minor when the minor reaches 21 years of age. The custodian may pay funds to the minor for use by the minor at any time the custodian thinks appropriate - even prior to an age where delivery is required. Death of the Minor Upon the death of the minor, the funds are paid to the minor s estate. The custodian, in that capacity, has no ownership of the funds. Death of the Custodian The death of the custodian has no effect on the ownership of funds. Upon the death of the custodian, the successor custodian assumes the responsibilities of custodian. Appointing a Successor Custodian The custodian may name anyone he/she chooses as successor custodian. There are no requirements that the successor custodian be related to the minor. The designation may be made on the signature card or on a form designed for that purpose. Either way, the successor custodian is not permitted to have access or get account information until the death, removal or resignation of the primary custodian. Note: If your deposit account forms are generated via computer, be sure to check and see if a successor custodian designation form is available through your system. In many instances the form is provided for use by the service provider, but not activated by the bank at conversion. Pegasus Educational Services, LLC - 9 -

18 Uniform Transfers to Minors Act Accounts Appointing a Successor Custodian, continued There are several methods for appointing a successor custodian if a custodian: dies, resigns, or is removed. If the original custodian named a successor custodian Then the named successor assumes responsibility for the account. did not name a successor and the minor is over 14 years of age the minor may appoint a successor custodian.* did not name a successor and the minor is less than 14 years of age and has a court appointed guardian the guardian may assume the role of successor custodian. did not name a successor and the minor is less than 14 years of age and does not have a court appointed guardian the court may appoint a successor custodian. *A successor custodian appointed in this fashion must be an adult member of the minor s family, a legal guardian or a trust company. Pegasus Educational Services, LLC

19 Decedent s Estates Overview An estate is a separate legal entity. A personal representative is appointed by the court to assemble the decedent s assets, pay the decedent s bills and distribute the remaining property among the decedent s heirs. The personal representative, referred to as an executor, executrix, administrator or administratrix must file periodic reports with the court. The estate assumes the decedent s assets and liabilities, but it is legally a separate person. What is required to open? Obtain the following from the estate prior to opening: BSA Regulations Require legal name. street address, and EIN. What is required by your Bank s CIP and CDD? Your bank s CIP and CDD procedures determine additional information, number and type of identifying documents and more. This is used to verify the identity and existence of the estate, and may include: Letters Testamentary or Letters of Administration.. Note The estate has legal capacity in its own right. Whether or not CIP and CDD applies to the estate s representative is determined by the bank s policies and procedures. KNOW YOUR PROGRAM! Titling the Account The account is titled the way the name of the estate appears on the order of appointment. The name and title of the estate s representative may also be included in the title. It is not required. Examples Correct Frank White Estate, Jane Brown, Executrix (optional) Incorrect Jane Brown, Executrix of the Estate of Frank White Ownership of Funds The funds in the account are owned by the estate. The estate s representative, in that capacity, has no ownership of funds. Pegasus Educational Services, LLC

20 Decedent s Estates Signature Card The signature card is signed by the estate s representative. He/She signs evidencing the fiduciary relationship, i.e. Jane Brown, Executrix. Authorized Signers The executor or administrator is appointed by the court. He/She is charged with handling the estate s affairs. Only the Court may appoint a co-executor or co-administrator. The representative is not permitted to name additional signers on the account. IRS TIN Requirements An estate must obtain an EIN to open a deposit account. It is required by CIP regulations. An IRS Revenue Ruling places additional emphasis on interest bearing accounts: Payors of interest must use the identifying number of the person to whom the account is payable in reporting interest on form If interest is payable to an estate, under Rev. Rul the administrator or executor must furnish the estate s employer identification number, not the decedent s social security number to the payor. Revenue Ruling The EIN is certified by the estate s representative. Death of the Representative The death of the personal representative has no effect on the account. The court will appoint a new personal representative. Pegasus Educational Services, LLC

21 Decedent s Estates Small Estates There are special rules for small estates when the decedent dies intestate (without a will). According to Estate Code et. seq. If Then the value of the decedent s estates assets, not including homestead and exempt property, does not exceed $50,000 and no petition for the appointment of a personal representative has been filed and thirty days have lapsed since the death of the decedent, the beneficiary(ies) of the estate fills a small estate affidavit with the county clerk, and then a judge approves the affidavit. The affiant presents the affidavit to the bank, and the bank complies with the affidavit. Note: The county clerk is required to maintain an index of small estate affidavits. To verify the validity of a small estate affidavit, contact the county clerk s office named on the document. Note: The financial institution is not liable for funds released pursuant to a valid small estate affidavit. (See Estate Code for protections under statute. Pegasus Educational Services, LLC

22 Trusts Revocable and Irrevocable Overview Trust are written for a wide range of reasons, i.e. to implement an estate plan and avoid the probate process, reduce federal estate taxes, provide care for a disabled family member, gift money posthumously, facilitate business goals, and the list goes on. Trusts are either revocable or irrevocable. A revocable trust can be changed or closed (revoked). An irrevocable trust is not permitted to be changed, and may not be closed until the terms of the trust are met. For tax purposes, a trust is considered grantor, simple or complex. Generally, a grantor trust is revocable, and simple and complex trusts are irrevocable. In every case, it is the trustee s job to administer the trust according to its terms, and provide the bank with information and documentation required to open and maintain the account. For example, the TIN provided is determined by how the tax return is filed. What is required to open? The trust is the customer for CIP purposes. Obtain the following from the trust prior to opening: BSA Regulations Require legal name, street address, and EIN. What is required by your Bank s CIP and CDD? Your bank s policies and procedures determine additional information, number and type of identifying documents, and more. This is used to verify the identity and existence of the trust. See below for examples. KNOW YOUR PROGRAM! Documentation to evidence the existence of the trust may include: A copy of the trust agreement or A copy of the first, last page and any successor trustee pages, or A certificate of trust, in affidavit form from the trustee as provided for in Texas Finance Code , and including the: effective date of the trust, name of the trustee, name or the method for choosing successor trustees, authority granted to the trustee, disposition of the trust on the death of the last surviving trustee any other information required by the bank and an indemnification of the bank. Pegasus Educational Services, LLC

23 Trusts Revocable and Irrevocable What is required to open?, continued Note: The certificate of trust is specifically provided for by Texas statute, Finance Code, Section which indicates: The bank is not liable for administering the account as provided by the certificate of trust, even if the certificate of trust is contrary to the terms of the trust agreement, unless the bank has actual knowledge of the terms of the trust agreement. No matter who prepares the certificate, it is to be signed by the trustee. Titling the Account The title of the account is the name of the trust exactly as is appears in the trust agreement. The name(s) of the trustee(s) may also be included in the title. It is not required. Examples: Harold Jones Revocable Living Trust, Jane Brown Trustee (optional) or John R. Smith Trust, UAD David Smith and Sally Smith Trustees Ownership of Funds The funds in the account are owned by the grantor(s) if the trust is revocable. An irrevocable trust is a separate entity managed by the trustee, for the benefit of the trust s beneficiaries. The trustee, in that capacity, has no ownership claim to the funds. Signing the Signature Card Only the trustee(s) is/are permitted to sign the signature card. A successor trustee signs only in the event he/she assumes the role of trustee. Authorized Signers A trustee is not permitted to name an authorized signer unless expressly authorized by the terms of the trust. Only those named as trustees at the time the trust is created are allowed to transact on the account. Pegasus Educational Services, LLC

24 Trusts Revocable and Irrevocable IRS TIN Requirements A trust may use either the SSN of the grantor or the EIN of the trust. The trust s EIN is certified by the trustee. It is the trustee s responsibility to provide the correct TIN. The TIN on the account must match the TIN used to report trust income to the IRS. If a trustee who is not the grantor provides the grantor s SSN, the trustee, not the financial institution, is required to have the grantor s certification of that SSN. However, the trustee must acknowledge whether or not the grantor is subject to backup withholding. Note: The determining factor is who has assumed the responsibility of reporting income from the trust to the IRS. The financial institution accepts the TIN provided. Death of a Trustee The death of a trustee who is not also the grantor does not affect ownership of the account. Upon the death of a trustee when a successor is named: the successor trustee provides the financial institution with a certified copy of the original trustee s death certificate, the successor trustee s designation is verified in the trust agreement, the successor trustee s identification is verified and a new signature card is executed. If a successor trustee is not named in the trust document, consult your bank s attorney on how to proceed. It would ultimately be the responsibility of the beneficiary(ies) to ensure the position was filled as soon as possible. Death of a Grantor The most common grantor trust is one established by husband and wife where either can revoke the trust during their lifetime, but it becomes irrevocable, either all or in part, on the death of either. Upon the death of a trustee who is also a grantor: follow the direction of the surviving trustee(s) or successor trustee(s), and make certain that the deceased grantor s SSN is no longer used for reporting on the account. Pegasus Educational Services, LLC

25 Guardianship Estates Overview When a person is legally disabled the court appoints a fiduciary to act on his/her behalf. The disabled person is called the ward. The fiduciary is obligated to act in the best interest of the ward and file periodic reports with the court. Guardian Defined Texas law defines a guardian as follows: Estate Code Sec GUARDIAN. (a) "Guardian" means a person appointed as a: (1) guardian under Subchapter D, Chapter 1101; (2) successor guardian; or (3) temporary guardian. (b) Except as expressly provided otherwise, "guardian" includes: (1) the guardian of the estate of an incapacitated person; and (2) the guardian of the person of an incapacitated person. Added by Acts 2011, 82nd Leg., R.S., Ch. 823 (H.B. 2759), Sec. 1.02, eff. January 1, Reasons for Appointment The most common reasons for appointing a guardian are: minority of a child, mental incompetence of an adult, and physical incompetence of an adult. What is required to Open? Obtain the following from the guardian prior to opening: BSA Regulations Require name street address of residence, date of birth and SSN. What is required by your bank s CIP and CDD? Your bank s CIP and CDD procedures determine additional information, number and type of identifying documents and more. This is used to verify the identity and authority of the fiduciary, i.e. the court appointment. KNOW YOUR PROGRAM! Note: The ward s SSN is obtained and used for interest reporting. Pegasus Educational Services, LLC

26 Guardianship Estates Titling the Account The account is titled in the name of the ward, by the fiduciary. The fiduciary s name and title are included. Example: Suzy Smith, by David Smith, Guardian Ownership of Funds Signature Card The funds in the account are owned by the ward. The signature card is signed by the fiduciary in that capacity. Example: David Smith, Guardian IRS TIN Requirements Death of the Fiduciary Obtain the SSN of the ward. The guardian provides the certification. The death of the guardian has no impact on the ownership of funds. The court will appoint a new guardian. Death of the Owner Upon the death of the ward, funds are paid to his/her estate. Pegasus Educational Services, LLC

27 Government Fiduciaries (SSA and VA) Overview When a person receiving benefits from the Social Security Administration (SSA) or Department of Veteran s Affairs (VA) is deemed incapable of handling the payments, the federal government agency paying the benefits is authorized to name a fiduciary for the sole purpose of accepting payment and managing funds on his/her behalf. The agent named by SSA for those receiving SSA or SSI benefits is the Representative Payee (Rep Payee). The VA will name a VA Fiduciary. A person or entity designated as a rep payee or a VA fiduciary is only authorized to manage the applicable government benefits. Resources Both the SSA and VA make publications available for their fiduciaries. They are designed to provide information and guidance to the fiduciary, but bank staff will also find them useful. The publications are available online at: Agency Name of Publication Download from SSA A Guide for Representative Payees /pubs/en pdf VA A Guide of VA Fiduciaries ARY/Fid_Guide.pdf What is required to open? Obtain the following from the government fiduciary at opening: BSA Regulations Require legal name street address of residence, date of birth and Social Security number. What is required by the Bank s CIP and CDD? Your bank s policies and procedures determine additional information, number and type of identifying documents, and more. This is used to verify the fiduciary s identity and authority. KNOW YOUR PROGRAM! Note: The beneficiary s SSN is obtained and used for interest reporting. Note: When an entity is named as fiduciary, CIP applies to the entity. The entity provides minutes or completes a resolution to name signers. Pegasus Educational Services, LLC

28 Government Fiduciaries (SSA and VA) Titling the Account Rep Payee The account is titled in the name of the beneficiary, by the representative payee. The rep payee s name and title are included. Example: Suzy Jones, by David Smith, Representative Payee The following guidance appears in the SSA Publication, A Guide for Representative Payees: To protect the beneficiary s funds, the checking or savings accounts title must reflect the beneficiary s ownership of the funds and your relationship as a fiduciary (financial agent). Neither the representative payee nor any other third party can have ownership interest in the account. The beneficiary must never have direct access to the account. Any account title (under state law) that shows beneficiary ownership of the account with you as fiduciary is acceptable. Do not use joint accounts. Here are two ways we recommend to title the accounts: (Beneficiary s name) by (your name), representative payee. (Your name), representative payee for (beneficiary s name). Your bank will provide help if you have additional questions. Often times a parent is acting as representative payee for several children. Social Security allows for a commingled checking account showing the parent as the owner in those situations. See below An exception for parents who are representative payees A common checking account for all family members living in the same household who receive benefits may show a parent as the owner of the account. Children s savings, however, must be held in a separate savings account for each child, with the child s name shown as the owner of the account. Pegasus Educational Services, LLC

29 Government Fiduciaries (SSA and VA) Titling the Account VA Fiduciary The account is titled in the name of the beneficiary, by the VA fiduciary. The VA fiduciary s name and title are also included. Example: Suzy Jones, by David Smith, VA Fiduciary The following guidance appears in the VA Publication, A Guide for VA Fiduciaries: How Do I Maintain the Beneficiary s VA Funds? As a fiduciary, there are rules you have to follow when managing the beneficiary s VA funds: You must keep VA funds in an account in a federally insured bank or credit union. You must have VA funds direct-deposited into the account. You must establish the account in the beneficiary s name and your name, and identify the fiduciary relationship. The title of the account will show the beneficiary has ownership of, but not access to, VA funds. For example: (Beneficiary s Name), by (Your Name), Fiduciary (Your Name), Fiduciary for (Beneficiary s Name) Your bank or credit union can answer any questions that you may have about this requirement. You must keep the beneficiary s VA funds in an account separate from your funds or anyone else s funds. However, the general rule about keeping a separate account does not apply to the following fiduciaries: o Spouses o State or local government entities o Institutions, such as public or private medical care facilities, nursing homes, or other residential care facilities, when an accounting is not required Page 13 Ownership of Funds The beneficiary owns the funds in the account. Pegasus Educational Services, LLC

30 Government Fiduciaries (SSA and VA) Signature Card The government Fiduciary signs the signature card in that capacity. Example: David Smith, Representative Payee (or VA Fiduciary, if applicable) IRS TIN Requirements Obtain the SSN of the legally disabled person. The representative payee provides the certification. Death of the Fiduciary The death of the representative payee has no impact on the ownership of funds. The SSA will appoint a new representative payee. Death of the Owner Upon the death of the legally disabled person, funds are paid to his/her estate. Procedures for releasing funds are: Release the funds to Upon receipt of the estate s representative, e.g. executor or administrator letters testamentary and valid identification. Pegasus Educational Services, LLC

31 Business (and Club) Accounts accounts held by individuals, entities, or groups for business, recreational or charitable purposes Pegasus Educational Services, LLC

32 Business Accounts: General Information Overview Compliance with Federal laws, regulations and regulatory expectations requires gathering and processing a lot of information and documentation when opening an account for a business. By asking for copies of licenses, permits, DBA certificates, etc. banks are attempting to verify that a valid, legally organized business one acknowledged by actions of state or local government actually exists for valid, legal purposes. The best method of verification depends on the form of business organization; i.e. is the business a: sole proprietorship, partnership, limited partnership, limited liability company, or corporation? Adherence to Bank s CIP and CDD The bank s CIP determines the identifying information required to open an account for a specific type of business. The program also includes procedures used to verify the existence and legal status of the business. Bank staff is generally instructed to: obtain one or more documents (provided by the customer), and use one or more methods of non documentary verification. CDD is a part of the bank s anti-money laundering program. When opening an account for a business, the answers provided to questions asked assist the bank in calculating the business s potential risk for money laundering and terrorist financing, establish a transaction profile for baseline monitoring, and determine whether the customer is perceived to be high-risk and therefore required to provide additional information and documentation. The bank s specific CIP and CDD procedures are followed for every account opened. This manual includes information required by CIP regulations and describes documents and methods that may be used of verify the customer s identity. The bank s policies and procedures determine what is documents are permitted when opening an account for a business account customer at your bank. Below is information on what is available. KNOW YOUR PROGRAM! Pegasus Educational Services, LLC

33 Business Accounts: General Information Evidence of Formation Evidence of formation is provided by the customer at account opening. To verify that a business legally exists, the bank obtains certified copies of government issued acknowledgements of its existence. When opening an account for a legal entity formed by filing documents with the Secretary of State, the bank is asking for documents the business has in its records. To verify the existence of a partnership or the assumed name of one or more individuals, the bank requires evidence of filing with the city, county or state. Evidence of a DBA registration with the county may be the most available, but there are other options. Documents Available Limited partnerships, limited liability companies and corporations must register with the State of Texas in order to do business in the state. If the bank s CIP permits it, the customer may provide the following to document existence: Document Certificate of Formation Certificate of Filing Certificate of Registration Certificate of Status (LLCs and corporations only) Description Filed with the SOS to form the business. (This replaced the old Articles of Incorporation/Organization, etc.) Issued by the SOS as a memorial to the fact the business was formed. (This replaced the old Certificate of Existence) Issued by the SOS and evidences that a foreign (not Texas) business has registered and is authorized to do business in Texas. (This replaced the old Certificate of Authority.) Issued by the SOS to verify the entity is active and in good standing. There is a fee. See below for more information. Certificate of Status This may also be referred to as a Certificate of Existence. It is issued by the SOS. There is a fee. See below for more information. Pegasus Educational Services, LLC

34 Business Accounts: General Information Non- Documentary Verification The existence of a corporation, limited partnership or limited liability may be verified through the Secretary of State either on-line or over the telephone. For corporations and LLCs the Comptroller s website is another good option. State Office Secretary of State Contact Information shtml Searches are $1.00 each. Certificates of Filing and Formation, and a Certificate of Status, may be printed for a fee. Verbal confirmation of the existence of a LLC can be obtained by calling the Secretary of State - Corporate Records Line. The phone number is Comptroller of Public Accounts Note: The Certificate of Account Status (sometimes called a Certificate of Good Standing) is no longer available from the Comptroller s Office. ntr.html Access the Franchise Tax Account Status page free from the Comptroller s website. This website also includes information on directors and officers. Certificate of Status/ Certificate of Existence A certificate of status is a certificate issued by the secretary of state that serves as official evidence of an entity s existence or authority to transact business in Texas. It is also referred to as a Certificate of Existence. A certificate of status provides a statement of an entity s status (for example: active and in good standing), as well as the entity s current legal name and date of formation or registration. For more information access the Texas SOS website at: Pegasus Educational Services, LLC

35 Business Accounts: General Information Assumed Name Filings (DBA) Any business operating under an assumed name doing business as, whether is a proprietorship, a partnership, corporation, etc., is required to register under that name. The purpose of the DBA filing is to inform the general public as to the actual ownership of the business. Note: While the government offices involved attempt to prevent duplicate filings, the filing does not protect or establish an ownership right in the name. Its purpose is to inform the public, not to protect the business. If the name of the business does not include the name of the owner, filing is required. Filing Required Y/ N Mark Adams, DBA Blind Hog Saloon Y Four Star LLC, DBA Rainbow Creations Y Greater San Antonio Transportation, Inc., DBA Alamo Cab Y Mark Adams DBA, Adams Round Rock Gems N Smith & Jones, Attorneys at Law N A business operating under an assumed name is required to register at either the state or county level. If the party doing business under an assumed name is a corporation, limited partnership, registered limited liability partnership or limited liability company, Sole proprietorship or a general partnership, then registration is required at the Secretary of State s Office and the county clerk in the county where the entity maintains its registered office, principal office or the principal place of business. office of the County Clerk in the county where the business is located or conducted. Note: The primary purpose of registration s is to protect the public. Pegasus Educational Services, LLC

36 Business Accounts: General Information Miscellaneous Evidence of Existence The financial institution s objective is to verify that it is dealing with a properly formed, legitimate business. In summary, it is requiring a copy of a document or documents issued by some level of government that recognize that the business exists. To avoid placing an unnecessary burden on its customer, the financial institution s procedures may show flexibility in documents provided by the customer at account opening, particularly if the entity is not a creature of statute required to register with the state. It is critical to be familiar enough with state and local requirements so the financial institution can give its customer a list of acceptable documents from which to choose. These may include: IRS letter assigning the EIN, Occupational license, Local business license State sales tax certificate Resolutions An entity, such as a partnership, corporation or limited liability company, makes binding decisions when its governing body passes a resolution at a properly called meeting. Alone, a resolution does not prove an entity exists, it only establishes who is empowered to act for the entity. Even when a corporation or LLC only has one shareholder or one member, resolutions are still necessary. The resolution requested by the financial institution is a memorial of a resolution or agreement that already exists in the official records of the business not just a form that the corporate president, corporate secretary or member of an LLC fills out at the new accounts or loan officer s desk. Sophisticated corporations are likely to deliver their own resolutions, certified in advance by the corporate secretary. Less sophisticated operations may depend on vendor forms provided by the bank. It s assumed that bank employees are fully aware of the language included in resolutions provided by the bank. Particular care should be taken to read resolutions supplied by the customer. Pegasus Educational Services, LLC

37 Business Accounts: General Information Resolutions, continued Business provided resolutions do not typically contain language that is protective to the bank. For that reason, banks should require the business account customer s authorized representative to complete and sign a resolution provided by the bank. Resolutions must be signed by the right person to be effective: If the entity is a partnership limited liability company corporation sole proprietorship then the resolution is signed by all general partners or the *managing partner. the *manager or *designated member, and attested to by another member or manager. the corporate secretary (responsible for taking board meeting minutes) and attested to by another officer. the sole proprietor. *If the resolution is being signed one or more individuals on behalf of others, e.g. a managing partner signs on behalf of all partners, proof of authority is required, e.g. partnership agreement. Agents/ Authorized Signers Entities generally name one or more individuals to act as agents on bank accounts. The resolution is used to name agents and assign powers to each. All agents sign the resolution, and those with transaction authority also sign the signature card. Bank policy determines whether or not CIP applies to agents/authorized signers on business accounts. The regulation does not require it. The bank s CIP will determine information and verification procedures. The number of documents required may differ from that of a customer that meets the regulatory definition. KNOW YOUR PROGRAM! In addition, if the bank s nondocumentary verification procedures require the use of a third-party service bureau or credit bureau, the Fair Credit Reporting Act requires that the bank obtain written authorization prior to accessing the record of a consumer, when the bank does not have a permissible purpose for the report, i.e. the consumer has no liability for the account. No authorization is required to check the OFAC list. A new resolution is required to add or remove agents. Pegasus Educational Services, LLC

38 Sole Proprietorships Overview A sole proprietorship is a business owned by an individual. Legally the individual owner and the business are considered one person and are not separated for the purposes of taxes, contracts and legal actions. Required Information Effective September 1, 1999, state law requires a bank to obtain personal information from the sole proprietor. It must also obtain the physical address for the business. These requirements are indicated below by a TX. This is a requirement to obtain information, not documentation. Effective October , CIP regulations require information, documentation and verification on the person opening the account. These items are indicated below by a CIP. What is required to open? Following is a sample documentation policy. A bank s CIP requires some or all of the following from the proprietor prior to opening: Required by State Law and CIP name (TX, CIP), Social Security number* (TX, CIP), home address (TX, CIP), date of birth (CIP), the physical address for the business (TX), driver s license or personal identification card number (TX, CIP). What is required by your Bank s CIP and CDD? Your bank s policies and procedures determine additional information, number and type of identifying documents and more. This is used to verify the identity of the proprietor, and establish that any assumed name used is recognized as an assumed name of the proprietor, and may include: an assumed name certificate (if applicable)** or other documentation of business name as filed with a city, county or state, and resolution authorizing action sought, (if requesting authorized signers) and a verified signature for each signatory, (if requesting authorized signers). KNOW YOUR PROGRAM! Pegasus Educational Services, LLC

39 Sole Proprietorships What is required to open?, continued *Sole proprietorships may provide an employer identification number for IRS reporting purposes, but the Social Security number is preferred by the IRS and required by CIP and State law. ** A sole proprietorship which does not include the proprietor s surname in the name of the business is required to register the business with the county clerk s office in every county in which the proprietor conducts business. Titling the Account The IRS provides the following guidance on account titling: 26. Q Can a sole proprietor have an SSN or does he or she need an EIN? A A sole proprietor may have an SSN or an EIN. However, he or she must always furnish his or her individual name (on Name Line 1), regardless of whether he or she uses a SSN or an EIN. A sole proprietor may also provide a business name or Doing Business As (DBA) (on Name Line 2), but he or she must list his or her individual name first on the account with you. From IRS Publication 1281 (Rev ) Frequently Asked Questions Correct Joe Smith, DBA Downtown Deli Incorrect Downtown Deli, Joe Smith, Proprietor Ownership of Funds Signing the Signature Card The funds in the account are owned by the proprietor. The signature card is signed by the proprietor. The proprietor may authorize others to sign on the account. Authorization is provided on the Sole Proprietorship Certification, Resolution, the signature card or a comparable document. Pegasus Educational Services, LLC

40 Sole Proprietorships Authorized Signers If others sign the signature card, they are clearly labeled as authorized signers, not as owners. Note: Failure to distinguish authorized signers from owners on the signature card may cause problems with ownership, death pay outs, levies and deposit insurance. IRS TIN Requirements The IRS permits the use of either the SSN or the EIN. The proprietor certifies the TIN. (Refer to IRS Form W-9 for more information.) Death of the Owner Joint Sole Proprietorship Accounts Upon the death of the proprietor, funds are paid to his/her estate. The authors strongly recommend against opening a business account for a husband and wife as if they were a single entity; i.e. a sole proprietorship: Although Texas is a community property state, that does not mean husband and wife are a single entity. The fact that the IRS allows husband and wife to show sole proprietorship income on a joint tax return does not decide the issue; tax laws allow a husband and wife to file together regardless of their sources of income. There is no Texas statute recognizing a husband and wife sole proprietorship. If both parties are equal owners in the business, they have a partnership. Note: This is not popular advice. That is primarily because many institutions already have many Mom & Pop businesses on the books and because customers do not want to go through any more formalities than necessary. Ask counsel for a written opinion on this point. Pegasus Educational Services, LLC