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• Settlement funds payable to minor – Title 12 O.S. § 83
• It’s tax re(fun)d time
Settlement funds payable to minors
by Scott Thompson
Would your bank open up an account solely in the name of a two-year old? I’m guessing probably not. It’s that issue that derailed a statute regarding minor settlements. In 2022, Oklahoma enacted the “Oklahoma Statutory Thresholds for Settlements Involving Minors Act of 2022,” codified as 12 O.S. §§ 86 and 86.1. The goal of the law was to avoid the necessity of filing suits in court in order to approve settlements involving minors that were no greater than $25,000 but greater than $1500. Prior to this statute, the law required a parent who settled a small claim on behalf of the minor to file a suit and obtain a court order even though the defendant and the insurance company had already agreed to a settlement. The new law allowed such small settlements to be handled by the legal guardian of the minor without the intervention of the court. However, the statute explicitly required the settlement funds be deposited into a federally insured savings account solely in the name of the minor.
Let’s go back to my first question. If a guardian brought in an insurance check and wanted to open a new account to deposit it in an account that was solely in the name of a very young minor, would you open that account? Many banks, probably most, would not. While some attorneys argued that the “solely in the name of the minor” language did not preclude a custodial account, the uncertainty caused many banks to err on the side of caution. I personally spoke to a number of attorneys who had clients wanting to open these accounts who told me they had been to numerous banks and were told the bank would not open such an account. The intent of the statute was being thwarted by the “solely in the name of the minor” requirement.
Fortunately, the problem was fixed in the last legislate e session by repealing Sections 86 and 86.1 and amending 12 O.S. § 83 to add minor settlement language with changes to resolve the account ownership issue. Now, settlement funds within the monetary range subject to the statute are deposited in a custodial account like those that banks already frequently open for court-approved settlements involving minors. However, instead of using a court order to open and restrict the account, the account is opened and restricted based on an affidavit. The affidavit should substantially conform to the exemplar set out in the statute:
“I, [Name of Affiant], being of lawful age and after being duly sworn upon oath, state as follows:
1. I am the parent or guardian of [Name of minor child], a minor child.
2. Minor’s date of birth is MM-DD-YYYY.
3. [Briefly state when, where, and how the incident in question occurred.]
4. [Briefly state how minor was injured in the incident, describe his or her injuries, medical care received, if any, and how they are doing today.]
5. As a result of the injuries sustained by XX in the incident in question, I, individually and on behalf of XX, a minor, agreed to settle the claims of XX against [Name of tortfeasor(s)], with their insurer, [if any, provide the name of Third-Party Liability Insurance Carrier(s)], in the amount of $XXXX; and with my UM/UIM insurer, [if any, provide the name of First-Party-Liability Insurance Carrier(s)], in the amount of $XXXX, [add additional tortfeasor or first-party coverages where applicable] for a total settlement in the amount of $XXXX.
6. I understand that all medical expenses, liens and subrogation claims must be paid from the settlement: [List all outstanding medical expenses, liens and subrogation providers and the amounts.]
7. I understand that I (or another parent or guardian of the minor) may be reimbursed from the settlement for medical expenses that I or we have paid for the care or treatment of XX as a result of injuries incurred by XX due to the subject incident as follows: [List all relevant medical expenses of XX, paid for by a parent or guardian, for which reimbursement is sought from the settlement.]
8. I understand that $XXXX will be paid from the settlement to [Name of Firm/Attorney, if any] for attorney fees and costs in securing the settlement pursuant to my contract with [Name of Firm/Attorney].
9. I understand that pursuant to subsection B of Section 83 of Title 12 of the Oklahoma Statutes, the net of Minor’s settlement in the amount of $XXXX must be deposited in a savings account that accrues interest at one or more federally insured banking, credit union or savings and loan institutions; in a trust established for Minor, by a bank or trust company having trust powers under state or federal law; or into a structured settlement, by the terms of which the proceeds of a settlement may be invested in an annuity to be paid to or for the benefit of Minor by an insurance company licensed in this state. All or a portion of the recovered monies may be deposited in an account pursuant to the Oklahoma College Savings Plan Act with Minor designated as a beneficiary of the account.
10. I understand that such funds may not be withdrawn, removed, paid out, or transferred to anyone until Minor is eighteen (18) years of age, except pursuant to court order or upon the minor’s death. When the Minor reaches the age of eighteen (18) years, the funds may be withdrawn, removed, paid out or transferred by the minor without a court order.
11. I understand that I must deposit the funds, secure a Receipt of Deposit from the bank, and if I am represented, to return the Receipt of Deposit to my attorney. I must also advise the minor of the settlement and the location of the settlement funds as soon as the minor has the ability to understand its existence and at the time the minor reaches eighteen (18) years of age.
12. I understand that should I not settle this matter on behalf of the minor, I have the right to ask for a jury trial in this matter, and that a jury may have awarded more, less, or the same amount, but by settling XX’s claims, I am giving up this right to a jury trial.
13. I understand that should I not settle this matter, or pursue a jury trial on behalf of XX, XX would alternatively have a right to bring a cause of action against [Name of Tortfeasor(s)] within the one (1) year between XX’s 18th and 19th birthdays; however, by settling this matter at this time on XX’s behalf, I am waiving his or her right to bring a cause of action at that time, and relatedly his or her opportunity to obtain a verdict through jury trial.
14. I understand that by settling XX’s claims, whether for already known or later-discovered additional injuries from the subject incident and/or if XX requires future medical care, I will not be able to open this claim or bring any future cause of action against [Name of Tortfeasor(s) or their insurer(s)], [Name of Insurance Carrier, if any], to request additional sums of money.
15. I believe this is a fair and reasonable settlement of XX’s claim: that to the best of my knowledge the minor will be fully compensated by the settlement, or there is no practical way to obtain additional amounts from the other party/parties entering into the settlement agreement.
16. I believe this settlement is in the best interests of XX.
17. I understand that this settlement is full and final; I have not been coerced, pressured, or threatened into entering this settlement in any way.
FURTHER AFFIANT SAYETH NOT.
______________________________
[Name of Affiant]
[Address of Affiant]
[Phone Number of Affiant]
I state under penalty of perjury under the laws of Oklahoma that the foregoing is true and correct.
______________ ________________________________________
Date Signature of Parent or Legal Guardian of XX
Approved as to form and content by:
[Attorney Name, if any]”
The institution may rely on this affidavit without investigation and has no liability to the minor or guardian if it does so. At the time the account is opened, however, the institution must provide a receipt of the deposit of funds using substantially the following form:
RECEIPT OF DEPOSIT
The undersigned, an Officer of [Name of Bank], does hereby acknowledge receipt of the Affidavit of [Name of Affiant], and that $XXXXX was deposited for the benefit of the minor, XX.
It is understood that the funds so deposited, pursuant to provisions under Section 83 of Title 12 of the Oklahoma Statutes, may not be withdrawn, removed, paid out, or transferred by anyone until XX is eighteen (18) years of age, except pursuant to court order or upon the minor’s death.
When XX reaches the age of eighteen (18) years of age, the funds may be withdrawn, removed, paid out, or transferred by XX without court order.
BY: _____________________________
Signature
_____________________________
Printed Name
_____________________________
Title
Subscribed and sworn to before me this ________ day of ___________, 20__
_____________________________
Notary Public
My Commission Expires:
__________________________
Once set up, the account operates essentially the same as a court-ordered minor account. Access to the funds is restricted without a court order until the minor attains the age of eighteen (18). At that time, the funds shall be released to the former minor.
It’s income tax re(fun)d time
By Pauli Loeffler
Each year at this time, I get a variety of questions regarding income tax refunds deposits whether these are made by paper checks or direct deposit. I’ll cover various scenarios.
I covered the 2012 FinCEN Advisory 2012-A005 Tax Refund Fraud and Related Identity Theft in the May 2012 OBA Legal Briefs. On February 26, 2013, FinCEN provided an Update in FIN-2013-A001.
Identifying Tax Refund Fraud
Financial institutions are critical in identifying tax refund fraud because the methods for tax refund distribution – issuance of paper checks, and direct deposit into demand deposit or prepaid access card accounts – often involve various financial services providers.4 The number of tax refunds being distributed via direct deposit has increased significantly over the past several years and continues to increase annually.5 In direct correlation, financial institutions may see tax refund fraud activity increase and related suspicious activity may be connected to direct deposit transactions. To assist financial institutions with identifying potential tax fraud, FinCEN, in consultation with the IRS and law enforcement, has identified the following red flags.
• Multiple direct deposit tax refund payments, directed to different individuals, from the United States Department of the Treasury (Treasury) or state or local revenue offices are made to a demand deposit or prepaid access account held in the name of a single accountholder.
• Suspicious or authorized account opening at a depository institution, on behalf of individuals who are not present, with the absent individuals being accorded signatory authority over the account. The subsequent deposits are comprised solely of tax refund payments. This activity often occurs with fraudulent returns for the elderly, minors, prisoners, the disabled, or recently deceased.
• A single individual opening multiple prepaid card accounts in different names, using valid TINs for each of the supplied names and having the cards mailed to the same address. Shortly after card activation, Automated Clearing House (ACH) credit(s) from Treasury, state or local revenue offices, representing tax refunds, occur. This is followed quickly by ATM cash withdrawals and/or point-of-sale purchases.
• Business accountholders processing third-party tax refund checks in a manner inconsistent with their stated business model or at a volume inconsistent with expected activity. Similarly, individuals processing third-party tax refund checks through a personal account with no business or apparent lawful purpose.
• Business accountholders processing third-party tax refund checks and conducting transactions inconsistent with normal business practices, which may include:
o A large volume of Treasury refund checks or bank checks being deposited, in contrast to other checks, such as payroll checks;
o A large volume of refund checks bearing addresses of customers who reside in another state;
o Multiple refund checks for the same or almost the same dollar amount;
o Treasury refund checks or bank checks representing electronic refunds with sequential or close to sequential numbers;
o The dollar amount of checks being deposited is not commensurate with the amount of currency being withdrawn to cover the cashing of these refund checks.
• Multiple prepaid cards that are associated with 1) the same physical address [individuals involved in criminal activity may also contact the customer service department requesting to change their address for their permanent prepaid card shortly after opening their temporary prepaid card account on-line]; 2) the same telephone number; 3) the same e-mail address; or 4) the same Internet Protocol (IP) address, which receive tax refunds as the primary or sole source of funds.
• The opening of a business account for a check cashing business at a financial institution, which subsequently processed a high volume of tax refund checks issued to individuals from other states.
• A sudden increase in volume involving the cashing of tax refund checks issued to individuals from across the United States, moving through the account of an existing check cashing service.
• Individuals using bank accounts where the majority of the transactions are ACH federal tax refunds or refund anticipation loans.
• Individuals attempting to negotiate double endorsed Treasury tax refund checks with questionable identification.
• Individuals accompanying multiple parties to the bank to negotiate Treasury tax refund checks. Such items may or may not be double endorsed checks.
• The freezing or closure of a personal or business account due to suspicious activity involving either Treasury tax refund checks or ACH Treasury deposits.
• The signature/endorsement on the back of the check(s) does not match the identification of the individual conducting the transaction.
• The same signature/endorsement is used on multiple checks, with multiple names.
• Employees of financial institutions may also facilitate tax refund fraud by conducting transactions inconsistent with normal activity through the following practices:
o Tellers who regularly process large quantities of Treasury tax refund checks. This may include one or more tellers during a specific time frame.
o Bank employees who open multiple bank accounts that received a large quantity of Treasury tax refund checks.
o Bank employees who did not follow proper identification procedures or accepted apparent fraudulent identification when opening an account.
I covered direct deposit of tax refunds in the February 2016 OBA Legal Briefs. The IRS and Treasury Department tout the benefits of direct deposit. Tax payers can receive their tax refunds sooner and more securely using direct deposit to their bank accounts. Taxpayers can even have their refunds deposited into more than one account using IRS Form 8888 or options in tax preparation software. In 2016, the IRS reported that 80% of taxpayers already receive their refunds via direct deposit, and each tax refund that’s sent via direct deposit rather than by check saves the government – and U.S. taxpayers – 90 cents.
Direct deposit is not without its challenges, however. Many direct deposits are sent out for credit to accounts not owned by the taxpayer(s) who are owed. One measure taken by the IRS has started imposing a per deposit account limit of three refund payments.
There is no regulatory requirement that your bank search through its incoming ACH files trying to identify “mismatched” refunds. Treasury and the IRS won’t attempt to recover funds that are deposited as instructed by the IRS if the bank is unaware of the mismatch.
On the other hand, if the bank becomes aware of a mismatched direct deposit from Treasury, including a tax refund, and in time to act on it before it’s posted, Treasury regulations (31 CFR Part 210, section 210.8(d)) require a bank to notify the sending agency (IRS in the case of tax refunds). The rule says that you can notify the agency by sending a Notification of Change (NOC) entry with the correct information (for recurring entries) or return the entry using an R03 (Account not found) code. The IRS will then send the refund in check form.
In the March 2016 OBA Legal Briefs, I covered how to handle federal and Oklahoma income tax refunds when husband and wife filed a joint return but thereafter one of the spouses has died. The information in that article is still correct, and you can view it online once you register an account through the My OBA Member Portal if you haven’t already done so.
I received a call from a banker regarding a direct deposit into an account not owned by the tax payer who was entitled to the refund. The tax payer or her accountant had provided the wrong account number, but the bank was able to track the deposit into an account owned by another customer. Can the bank put a hold on the funds? This sent me to the IRS website. Compared to other government websites, I really like IRS.gov since it is relatively easy to find answers such as when an entity requires a new EIN or what to do when a business changes its name. With regard to this particular situation, I found the following:
Question
What should I do if I entered an incorrect routing or account number for direct deposit of my refund?
Answer
The IRS assumes no responsibility for tax preparer or taxpayer error. Please verify your account and routing numbers with your financial institution and double check the accuracy of the numbers you enter on your return prior to signing and submitting it. You should not request a deposit of your refund into an account that’s not in your own name.
The IRS handles account or routing number errors the same for both split refunds and regular direct deposits.
Scenario:
You omit a digit in the account or routing number of an account and the number doesn’t pass the IRS’s validation check. In this case, the IRS will send you a paper check for the entire refund instead of a direct deposit.
You incorrectly enter an account or routing number and the number passes the validation check, but your designated financial institution rejects and returns the deposit to the IRS. The IRS will issue a paper check for the amount of that deposit once it is received.
You incorrectly enter an account or routing number that belongs to someone else and your designated financial institution accepts the deposit. You must work directly with the respective financial institution to recover your funds.
If the financial institution recovers the funds and returns them to the IRS, the IRS will send a paper refund check to your last known address on file with the IRS.
In this case, the account holder had absolutely no right to the funds. I suggested the bank notify the customer into whose account the erroneous direct deposit was made that the bank was returning deposit to the IRS and put a hold on the amount of the deposit.
The IRS provides additional information to the taxpayer whose refund has gone astray: If you have contacted the financial institution and two weeks have passed with no results, you will need to file Form 3911, Taxpayer Statement Regarding Refund.
This allows the IRS to contact the bank on your behalf to attempt recovery of your refund. Banks are allowed up to 90 days from the date of the initial trace input to respond to our request for information but it may take up to 120 days for resolution.
If funds aren’t available or the bank refuses to return the funds, the IRS cannot compel the bank to do so. The case may then become a civil matter between you and the financial institution and/or the owner of the account into which the funds were deposited.