dos and don’ts on endorsements webinar dos and don'ts on... · dos and don'ts on...

Dos and Don’ts on EndorsementsWebinar

Presented byChristy Crawford

1Dos and Don'ts on Endorsements

Instructor Christy Crawford

• Hello and welcome to the program.

• If you have any questions just call us at

225-252-7173 or email us at

[email protected]

Christy Crawford is president of Christy Crawford Consulting specializing in the education ofbanks and credit unions across the nation. Christy is an associate speaker for Gettechnical Inc.As a former trainer for Wal-Mart Corporation, and former V.P. of Gettechnical Inc. she bringsher previous 11 years of sales and training experience to your financial institution. She earned abachelor's degree from Louisiana State University and is BSA/AML certified. Her expertise isin the deposit side of the financial institution and focuses on teller, new accounts, IRAs, HSAs,robbery, security and BSA for the frontline training.


NEGOTIABLE INSTRUMENTSA negotiable instrument means an unconditional promise or order to pay a fixed

amount of money. It can be made payable to bearer or to order. It is important toidentify the endorser when instrument is being cashed and not deposited to anaccount of the payee.

Examples of negotiable instruments areChecks,cashier’s checks,traveler’s checks,certificate of deposit,

These items should be signed with the maker, drawer, or authorized signaturein accordance with the signatures on the signature card on file.

If an instrument contains contradictory terms, typewritten terms prevail overprinted terms, handwritten terms prevail over both, and words prevail overnumbers.


ORDER CHECKS/BEARER CHECKS

An order check is payable to an identifiable person or thing. A bearer check is made payable to cash.


SAMPLE OF AN ORDER CHECK

March 2, 20XX


SAMPLE OF A BEARER CHECK

March 2, 20XX


Do make sure the front of the check matches the back of the check and both match the account.

Don’t allow checks to entities go into personal accounts.

Dos and Don'ts on Endorsements 7

Front and back of check should match the account…


ENDORSEMENTS

An "endorsement" means a signature, other than that of a signer as maker, drawer, or acceptor, that is made on an instrument for the purpose of (i) negotiating the instrument, (ii) restricting payment of the instrument, or (iii) incurring endorser's liability on the instrument

9Dos and Don'ts on Endorsements9

Types of Endorsements—The Big Four

1. Blank—Check endorsed by payee2. Special—Check is endorsed by payee and

made payable to identified person3. Restrictive—For Deposit Only4. Qualified—Without Recourse


Blank Endorsement

March 2, 20XX


Special Endorsement

March 2, 20XX


Restrictive Endorsement

March 2, 20XX


Qualified Endorsement

March 2, 20XX


And/Or Checks

If an instrument is an “or” check either pay or endorse the check. If the check is an “and” check all payees must endorse. If it is ambiguous, then it is considered an “or” check. You will want to be careful with government checks and insurance drafts and make sure all parties endorse as the check is made out.


AND/OR Checks

March 2, 20XX

March 2, 20XX

March 2, 20XX


The Law Says:If an instrument is payable to two or more persons alternatively, it is payable to any of them and may be negotiated, discharged, or enforced by any or all of them in possession of the instrument. If an instrument is payable to two or more persons not alternatively, it is payable to all of them and may be negotiated, discharged, or enforced only by all of them. If an instrument payable to two or more persons is ambiguous as to whether it is payable to the persons alternatively, the instrument is payable to the persons alternatively.


Death Notice Or Incompetence

The financial institution’s ability to pay checks after death and incompetence is not rendered ineffective until we have knowledge of the customer’s death. May pay checks for 10 days after the date of death unless ordered to stop payment by a person claiming an interest in the account.


Names Do Not Match

Nicknames:First as it was written, and then correct name.

March 2, 20XX


Names Do Not Match

First as it was written, and then correct name.

March 2, 20XX


Checks Made Payable to Cash

Can we refuse?Can we stop payment on it?

March 2, 20XX


Do have fiduciaries endorse checks properly…

Don’t have them sign personally on checks without showing relationship to owner.


FIDUCIARY ACCOUNTS

When one person is named to act for another by contract, by law, by court or other legal arrangement they are considered in a fiduciary capacity.


Type Set up by

1. Authorized Signers, Agents In-house Power of Attorney

Signature card or attachments

2. Power of Attorney Outside Document

Outside contract

3. Custodians On signature card through state law

4. Social Security Representative Payees

On check by Social Security

5. Executors/Administrators Court

6. Guardian Court

7. Trustees Contract

FIDUCIARY ACCOUNTS


When one person is named legally to act for another

Powers of Attorney

UTMA Social Security Rep. Payee

Estates

Powers of Attorney act for owner

Set up by contract

Signers allowed as per signature contract

Custodian acts for child

Set up by state law and signature card

No other signers allowed

Rep. Payee acts for beneficiary/owner

Set up by Social Security


Executor or Administrator acts for decedent

Set up by court and by will


FLOWCHART: FIDUCIARY ‐ OVERVIEW


Fiduciaries as EndorsersWho are they acting for?

Who are they?

What is the capacity?


UTMAChild ownsChild’s SSNCustodian SignsChild has no access

Joint AccountChild Owns as co-owner mayUse child’s SSNChild signsChild has access

Styling:Little Johnnie, a minor by Sally custodian under UTMA

Styling:Little Johnnie or Sally or Bob

Ownership:LAUTMA

Ownership:Joint

Options for Children

#1 #2


Uniform Transfer To Minors Act (UTMA)

Under UTMA a custodian may want to set money aside for the minor as an irrevocable gift.

money belongs to the child If the custodian withdraws any of the money it must be used for the benefit of the child. Upon age _____, the funds will be turned over to the child

In most states…but some states are differentOnly one custodian and one child are allowed per account. On child’s death, funds go to child’s estateOn death of custodian, the guardian of the child will name a successor custodian if child under 14. If child is 14, the child can name the new custodian within sixty days.


Custodian Custodian sets up an account for a child at a bank. BANK

Custodian Custodian makes deposits and withdrawals at the bank for the child BANK

Custodian

Custodian gives the child the money if any left at age dictated by state law -18 and 21 in

most other states

Child


Sample Check 1:

Johnnie Smith is the minor and Sally Smith is the custodian.

How would the custodian endorse the check?


March 2, 20XX

Possible Answers:

Johnnie Smith (minor can endorse) ORJohnnie Smith by Sally Smith, custodian under UTMA

ENDORSE HERE

Johnnie Smith by

Sally Smith Custodian underUTMA

DO NOT SIGN/WRITE/STAMP BELOW THIS LINEFOR FINANCIAL INSTITUTION USAGE ONLY

FEDERAL RESERVE B AND REGULATION CC

ENDORSE HERE

Johnnie Smith




Sample Check 2: Sally Smith is given this check for Johnnie’s birthday. She wants to deposit it into the UTMA account.

How should she endorse the check?

Issue: Can you charge back Johnnie’s account if check is bad?


Sally Smith

Johnnie Birthday

March 2, 20XX

Possible Answer:Better to have her cash or deposit into her own account and write him a check. ORShe can cash the check against her own account and deposit cash.

ENDORSE HERE

Sally Smith




OVERVIEW OF PROBATE

The court proceeding in which: (1) the authenticity of a will is established, (2) the executor and administrator is appointed, (3) debts and taxes are paid, (4) heirs are identified, and (5) property in the probate estate is distributed according to the will or according to state law if no will.

Dos and Don'ts on Endorsements34

• Individual or Single party Accounts

• Sole Proprietorships• IRAs with no

beneficiaries

• POD Accounts• Living Trusts• IRAs with beneficiaries

ProbateAssets

Non ProbateAssets

Death ofCustomer

Set up Estate Account

Need Death CertificateNeed Letters of Testamentary or Letters

of Administration and Death Certificate

Pay Beneficiaries or Owners


Sample Check 1:

Sally Smith is the Executor/Executrix.

How should she endorse the check?

March 2, 20XX


Possible Answers:

The Estate of John Smith by Sally Smith Executor/Executrix

ENDORSE HEREFor Deposit onlyThe Estate of John SmithSally Smith Executor




Sample Check 2: The check is made payable to decedent. Sally Smith is the Executor/Executrix.

How should the check be endorsed? By whom? And is there any other option?

March 2, 20XX


Possible Answers:

Depends on type of checkIs it a treasury check? Recurring (goes back) or nonrecurring benefit (endorsed by executor)?Is it an insurance check? Definitely goes backIt is always best to send back and have it reissued to the estate Otherwise must be endorsed by Executor/Executrix


Sample Check 3: If the check is made payable to a decedent and his wife, who can endorse the back of the check?

Sally Smith is the Executor/Executrix.

March 2, 20XX


Possible Answers:

Send it back and have it reissuedOr have wife endorse both for herself and as executor depending on the type of check


Usually can act on more than one account, but not on all accounts. Must be revoked at the bank in person.

Can act as Power of Attorney document states and usually can be revoked many ways.

Powers of Attorney

Agents, convenience signer or authorized signers

In house Powers of Attorney

Out of house Powers of Attorney

Provided usually on financial institution signature card

Usually restricted to one particular account and can only make transactions while owner is alive

Provided by financial institution

Provided by customer


POWER OF ATTORNEY

When one person gives power to another to transact for him/her one or several affairs. It is always a good idea to have your financial institution's attorney read and approve these documents before you accept it.

"James Smith by Joe Smith, attorney-in-fact". There are other ways of signing.


Sample Check 1: Sally Smith has given a POA to her sister Hannah Smith.

How should Hannah endorse the check?

March 2, 20XX


Possible Answer:

Sally Smith by Hannah Smith, Attorney in factSally Smith by Hannah Smith, Power of Attorney

ENDORSE HERE

Sally Smith by

Hannah Smith Attorney in Fact



ENDORSE HERE

Sally Smith by

Hannah Smith POA




Sample Check 2:

Can Hannah Smith deposit her own check into Sally’s account?

How should it be endorsed?

March 2, 20XX


Possible Answer:Should power of attorneys benefit themselves?Maybe she should cash and deposit cashNot a great practice but if she signs…

Hannah Smith pay to Sally Smith Sally Smith by Hannah Smith, POA ENDORSE HERE

Hannah Smith pay to

Sally Smith

Sally Smith by Hannah SmithPOA


FEDERAL RESERVE B AND REGULATION CC47

Dos and Don'ts on Endorsements

Social Security Representative Payee

A Social Security account is an account for a person receiving Social Security benefits who is unable to act on their own behalf. The Social Security Administration has named a representative payee to act for the person. This can be for minor children or adults who are unable to act for them. The representative payee is the person with access to the funds and the other named individual on whose behalf they are acting is the actual owner of the account.


Sample Check 1:

How does a representative payee endorse the back of the check?

March 2, 20XX


Possible Answers:

Sally Smith, representative payee for Betty Smith Sally Smith for Betty Smith Betty Smith by Sally Smith, representative payee


Guardian Accounts

If an adult is ruled incompetent or a minor is unable to manage his or her affairs, the court will appoint a guardian. The guardian's authority ceases at the death of the ward or mentally incapacitated adult. A conservator is named for an older person.


Sample Check: How does the guardian of the child endorse a check?

Why do the checks to living children often still have the “estate” language?

Sally Smith is the guardian.

March 2, 20XX


Possible Answers:

Johnnie Smith by Sally Smith as Guardian

ENDORSE HERE

Johnnie SmithBy Sally Smith, Guardian




Revocable Trust (Living Trust)

A revocable living trust is a trust by which an individual or a couple transfers legal ownership to the trust account. The grantor or settlor will at least initially also is the trustee.


Revocable Trust (Living Trust)

The trust owns the assets, but the trustee retains control. Since the person setting up the account will also be the trustee, they will be able to do all the things they could do before--buy, sell, transfer, borrow etc. However, once placed in the trust the assets avoid the probate process and can be distributed immediately.



Customer (Grantor)creates a trust contract with an attorney

Grantor puts assets in trustHouse NamesLand TrusteeBank Accounts

Trustee

Grantor

Trustee takes care of assets in trust. When trustee dies successor trustee takes over.

Upon death of all trustees the successor trustee takes out assets and gives to beneficiaries according to the trust.

SuccessorTrustee

Beneficiaries


Sample Check 1:

March 2, 20XX


ENDORSEFor Deposit OnlyThe Mary and Joe Smith Living Trust

DO NOT SIGN/WRITE/STAMP BELOW THIS LINE

FOR FINANCIAL INSTITUTION USAGE ONLY


Possible Answers:

For Deposit Only The Mary and Joe SmithLiving Trust


Sample Check 2:

March 2, 20XX


Possible Answers:

Mary Smith, For Deposit Only, The Mary andJoe Smith Living Trust ENDORSE

Mary Smith

For Deposit Only

The Mary and Joe Smith LivingTrust





Business Accounts and Checks


Type of Entity Characteristics

SOLE PROPRIETOR

Simple to create, inexpensiveIncome reported on personal taxesOwner personally liable for business debtEnds at owner's death

GENERAL PARTNERSHIP

Simple to create, inexpensiveCreated by contract Partners report their share of profit or loss on their personal tax returnsPartners personally liable for deathMay cease at death of a partner, unless partnership agreement

LIMITED PARTNERSHIP

Two classes of partners a) general and b) limitedSuitable primarily to companies that invest in real estateLimited partners are basically investors and have no say in the businessGeneral partners personally liable

LIMITED LIABILITY PARTNERSHIP

A new type of business ownership which has features of partnership, with limited liability like a corporationCreated by agreement

CORPORATION

Many types of corporations: C Corp, S Corp, Professional Corp, Nonprofit CorpDo not cease at death of shareholders-owners have limited liability corporation files taxes on its own

LIMITED LIABILITY COMPANY

A hybrid between a corporation and a partnershipLimited liability to the membersTax treatment as a partnership requires strict compliance with IRS guidelines


SOLE PROPRIETORSHIPDescription

To establish a sole proprietorship all an individual is required to do is to start conducting business for profit. There are no formal legal requirements for establishment.Some states may require owner to file an "Assumed Name Certificate" if doing business in any name other than own. The business is owned by one person and upon his or her death the business will cease.


Signature Cards: Sole Proprietorship

1

OWNERSHIP

Sole Proprietorship

2

TITLE

Joe Smith dba Floral Enterprises

3

FEDERAL REGULATIONS

5

TAXPAYER IDENTIFICATION NUMBER

SSN or EIN of owner

4SIGNATURES (Access)

Joe SmithMary SmithBetty Smith


Sample Check 1: How is this check endorsed? Can it be deposited into the personal account of Joe Smith?

March 2, 20XX

ENDORSE

For Deposit OnlyFloral Enterprises





Sample Check 2:

How is this check endorsed?

Can it be deposited into a business account?

A personal account?

March 2, 20XX

ENDORSEFor Deposit OnlyJoe Smith





Signature Cards: General Partnership

1

OWNERSHIP

Partnership

2

TITLE

Johnson Enterprises

3

FEDERAL REGULATIONS

5


EIN of Partnership


William Smith, SignerBetty Johnson, Par tnerSue Johnson, Par tner


Sample Check:


Can it be cashed?

Can it be deposited into a personal account?

March 2, 20XX

ENDORSEFor Deposit Only

Johnson Enterprises




Signature Cards: Limited Partnership

1

OWNERSHIP

Partnership

2

TITLE

Johnson Enterprises, Ltd.

3

FEDERAL REGULATIONS

5


EIN of Partnership




How should this check be endorsed? Can it be cashed? Can it be deposited into a personal account?

I

For Deposit Only

Johnson Enterprises, Ltd




SAMPLE CHECK

Johnson Enterprises, Ltd. 10.00

March 31, XXXX

Ten & ----------------------------------------------0/100

Bill Smith


Signature Cards: Limited Liability Partnership

1

OWNERSHIP

Partnership

2

TITLE

Johnson Enterprises, LLP

3

FEDERAL REGULATIONS

5


EIN of Partnership




How should this check be endorsed? Can it be cashed? Can it be deposited into a personal account?

I

For Deposit Only

Johnson Enterprises, LLP




SAMPLE CHECK

Johnson Enterprises, LLP 10.00

March 31, XXXX

Ten & ----------------------------------------------0/100

Bill Smith


Signature Cards: Corporations

1

OWNERSHIP

Corporation

2

TITLE

Johnson Enterprises, Inc.

3

FEDERAL REGULATIONS

5


EIN of Corporation


Betty Johnson, PresidentWilliam Smith, Vice PresidentBill Johnson, Corporate Secretary


Sample Check: How is this check endorsed? Can it be cashed? Can it be deposited into Betty’s personal account? Can she get less cash?

March 2, 20XX

ENDORSEX For Deposit Only

Johnson Enterprises, Inc




Signature Cards: Multi‐Member LLC

1

OWNERSHIP

LLC

2

TITLE

Smith Electronics, LLC

3

FEDERAL REGULATIONS

5


EIN of LLC


Jack Smith, Managing MemberSally Smith, Member


Sample Check: March 2, 20XX

ENDORSEX For Deposit Only

Johnson Enterprises, Inc




NONPROFIT ACCOUNTS

Nonprofit Corporations

Formal Nonprofit

Organizations

Informal Nonprofit

Organizations

Public Fund Accounts

Tragedy and Benefit Accounts


Sample Check: Non‐Profit Corporation


March 2, 20XX

For Deposit OnlyBoy Scouts of America, Inc.


Sample Check: Formal Non‐Profit Organization


Can it be cashed?

March 2, 20XX

For Deposit OnlyRotary of Springfield


Sample Check: Informal Non‐Profit Organization


Can it be cashed?

March 2, 20XX

For Deposit OnlyThe 1975 High School Reunion


Sample Check: Tragedy/Benefit Account


Can it be cashed?

March 2, 20XX

For Deposit OnlyThe Betty Smith Burn Fund

81

The Betty Smith Burn Fund


Sample Check: Campaign Account


Can it be cashed?

March 2, 20XX

For Deposit OnlyThe Friends of Billy Bob


Some thoughts..

It is never a good idea to cash checks made payable to an entity. It is always a good idea to make sure entity checks match the account that the checks are deposited into.


8484

Gettechnical [email protected]

Thanks for participating!

Christy Crawford [email protected]


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