Mishandling of Nursing Home Trust Accounts a Growing Problem

Many nursing home residents have have "resident trust funds" or "personal accounts" managed by the facility. It may be that the residents have no family members or family members do not want the responsibility, or the nursing facility prefers to manage the resident’s income. Recently, USA Today did an investigative report in which 1,500 facilities have been cited for mishandling of funds in such resident trust accounts. Most of the deficiencies were related to failing to pay interest on the money held, inadequate accounting, or failure to give residents sufficient access to their money. However, there were egregious cases where funds were misappropriated by those who were intended to protect them. Go here to read the full article.   

The USA Today article explains the problem, describes specific examples of account misuse, and provides some practical solutions to  minimize the risk of loss associated with these accounts.  In every case, the resident should have an effective General Durable Power of Attorney in place naming a trusted agent and  alternates. Many nursing home residents are unable to monitor their own accounts, or may be unable to monitor their own accounts during periods of illness, disability, or incapacity. An attorney-in-fact empowered by a Power of Attorney document can monitor the resident account, and even minimize its use by keeping a limited amount of funds in the account. If the agent is willing and able to pay the resident’s bills, the use of the account will be limited to small purchases and will be less tempting to those who are using the accounts for their own purposes.

Fortunately, the resident fund accounts are usually insured.  An attorney-in-fact can make a claim against the insurance company is a loss is discovered.  Such a claim may be frustrated if the resident is unable to prosecute a claim.  It is important that losses are identified quickly, and claims made timely.  

The attorney-in-fact should also make sure that ultimate disposition of the account is provided for, either by an assignment of the account to the resident's revocable trust, or by a transfer upon death or payable upon death designation.  Otherwise the account may require probate court disposition.    

Bailing out of Unwanted Annuities

Rising Market in Purchase of Long Term Annuities

A fast-rising secondary market for people looking to cash in annuities for a lump sum settlement is causing consumers concern. Is this the perfect escape hatch for people locked into an annuity they don't want or yet another way for brokers to take advantage of seniors in dire financial straits? Of course, as with all financial tools, there is the possibility for both in each situation.

With an annuity, the buyer pays an insurance company a sum in return for regular payouts over a defined period. With more and more people owning or inheriting annuities, you can bet more and more people find themselves in a situation where they want out. Most annuities charge "surrender" penalties of up to 20% if the owner wants to withdraw the principal before a set period has expired. The penalty generally decreases with time.

Account Management Complicated By New Banking Rules

Every Account Holder Should Be Aware of Changes

Americans write about 40 billion paper checks each year. In addition, for the first time that number recently was eclipsed by the annual number of automated transactions involving checking accounts. Checking account transactions are such a widespread part of our lives that consumers of banking services are well advised to become acquainted with major changes affecting banking laws. Federal legislation called the Check Clearing for the 21st Century Act, or "Check 21" for short, went into effect on October 28, 2004.

Check 21 will allow financial institutions to process "substitute" checks--high-quality paper reproductions created from electronic images of both sides of an original check. In time, check processing will be faster, and this is where there will be ramifications for check writers and depositors.

While it has always been prudent to have enough money in your account to cover a check the moment you write it, who has not used the lag time in check processing to make a necessary deposit? That will soon become a riskier strategy as electronic check processing becomes more prevalent. It will also be more important than ever to keep checkbooks up to date, especially bearing in mind deductions for ATM withdrawals, bank fees, and debit-card purchases.

The risk is merely financial if you unintentionally "bounce" a check from time to time. But, if you have come to rely upon the float, and particularly if you use the float from two different accounts, you may find your problem is criminal in nature. The increased speed with which banks process checks may mean more charges of check "kiting." Check kiting is among the most common, and most dangerous, forms of check fraud foisted upon financial institutions. A kite is a form of shell game using at least two accounts at separate financial institutions. The common practice of allowing depositors to have immediate use of uncollected funds facilitates the scheme. Indeed, Regulation CC mandates early access to deposited funds. In the typical scheme, an NSF check is written by on one account and then deposited into an account at another institution. A check drawn on the second account is then used to cover the resulting overdraft on the first account. Taking advantage of the float caused by normal delays in the collection system, the wrongdoer creates fictional balances in each account and uses these balances to obtain cash advances.