What is a power of attorney?

• A power of attorney appoints a person to act as an agent for the person who executes the document. An agent is authorized to act for another person to the extent that the document permits. The acts of the agent (also known as the attorney-in-fact) will legally bind the person who granted him or her the power to act.
• Powers of attorney come in a variety of forms. There are two major types of powers of attorney: financial and healthcare. These powers can be combined into one document, but are frequently separate documents.
• Financial powers of attorney can be effective immediately or become effective upon the incapacitation or disability of the person who executed the power of attorney.
• Powers of attorney can also be limited to a certain period of time or last until they are revoked by the person who executed the power of attorney.

What is a durable power of attorney?

• A durable power of attorney remains effective during such periods of time that the individual who executed the document is considered incompetent.
• A durable power of attorney must be designated as such in the title.
• Specific wording must be used for a power of attorney to last during any period of time the person who signed the document is considered incompetent.

Who can execute a power of attorney?

• A power of attorney can be executed by anyone over the age of eighteen. The person signing the power of attorney must have the ability to understand the document he or she is signing.
• In cases where a person is diagnosed with an illness that may limit his or her cognitive function, a doctor’s report stating that the person is capable of understanding the document may be required by the attorney drafting the document.

Who may be appointed as the agent under a power of attorney?

• The agent may be any adult who is competent to act. The agent is often a family member or close friend. Typically, one person is appointed as an agent with one or more persons appointed as backup agents if the first person cannot act. The agent is not required to live in the same state.
• Under Missouri law, the following persons cannot serve as the agent:
  • The individual’s attending physician or employee of the attending physician unless the individual and the agent are closely related.
  • An owner, operator or employee of a health care facility in which the individual is a resident.
  • No person or corporation licensed as a facility by the Missouri Department of Mental Health or the Missouri Department of Social Services, nor any administrator, owner, operator, manager or employee of such a facility may be appointed as an agent unless closely related.
  • No full-time judge of any court of this state and no clerk, deputy clerk or division clerk shall be appointed as agent unless closely related.
  • No one under 18 may serve as an agent.
  • No incapacitated or disabled person may serve as agent.
  • No “habitual drunkard” may serve as agent.

How can a Power of Attorney be revoked?

• The death of the individual who granted the power of attorney revokes the document.
• The individual who granted the power of attorney can revoke the power of attorney either orally or in writing. A written revocation is recommended.

If a Power of Attorney is over 10 years old is it still effective?

• Yes. It is recommended that the power of attorney be reviewed by an attorney every five years to determine if any changes in the law have occurred. For powers of attorney that were enacted before the HIPAA changes, the document may not be effective to release the necessary medical records to make an informed healthcare decision.

If a Power of Attorney grants the agent the authority to take any and all actions on behalf of the individual are there any powers that are not covered?

• Certain powers must be specifically listed in the power of attorney in order for the agent to act on the individual’s behalf. These powers are:
  • The authority to execute, amend, or revoke a trust;
  • The authority to fund a trust not created by the individual with the individual’s assets;
  • The authority to make a gift from the individual’s assets or to revoke a gift of the individual;
  • The authority to disclaim a gift or inheritance to the individual;
  • The authority to change the beneficiary or survivor interest of the individual’s assets;
  • The authority to give consent to an autopsy or postmorten exam;
  • The authority to make a gift of the individual’s body;
  • The authority to nominate a guardian or principal for the individual;
  • The authority to give consent to or decline any type of health care, medical care, treatment or procedure; or
  • The authority to direct the withholding or withdrawal of artificially supplied nutrition or hydration.
• A power of attorney may not grant the following powers:
  • The authority to make, amend, or revoke a will on behalf of the individual;
  • The authority to execute, amend, or revoke a living will declaration of the individual;
  • The authority to require the individual to take any action or refrain from any action against his or her will; or
  • The authority to take any action specifically forbidden by the individual during any period the individual is competent.

If you have been appointed as an agent under a power of attorney must you serve as agent?

• No, before serving as agent it is recommended you consult with an attorney to fully understand the duties imposed by serving.

Who should be appointed as an agent under the power of attorney?

• The choice of an agent is often difficult and should be done only in connection with consultation of legal counsel. The agent should be trustworthy and capable of understanding the nature of his or her duties.

Brought before Congress since late 2008 have been proposals of huge B and not-so-huge B scope. (For example, the proposals would add more supervision and regulation of bank holding companies, the asset-backed securitization process, OTC derivative products and markets, private fund investment advisers and securities rating agencies, among many other functions.)  Most have since been adopted in bills passed separately by the Senate and the House of Representatives, and await review by joint conference committees. It is likely that most will be adopted in some form, after joint conference action, and signed into law. They will significantly affect the conduct of business in this country, and therefore how attorneys must advise their clients.

These include a proposal to bring back aiding and abetting liability, subjecting to liability persons who knowingly or recklessly provide substantial assistance to other persons in violating Rule 10b-5. Adoption will impact, for example, attorneys preparing registration statements, accountants giving audit opinions in such statements and managing underwriters in public offerings. More than just those involved in public offerings, however, will be at the increased risk created by this legislation, including all persons assisting issuers or even individual security holders in selling or purchasing securities.

Similarly, the SEC has, during and following a period of intense negative scrutiny of that agency since the 2008 economic meltdown, brought many more enforcement cases in a number of areas, the main one of which is insider trading. But it is not the number of cases it has brought, rather, it is the SEC’s attempt to broaden the scope of liability under insider trading and possibly other laws, which should concern business people and their attorneys. Indeed, the broadening by the SEC of its definition of what disclosures and use of information are prohibited, together with the largely unregulated and rapidly growing (and often unthinking) use of social media, may bring about a “perfect storm” of what the SEC may consider violations of the insider trading laws.

And the Supreme Court in its recent ruling in Merck & Co., Inc., et al. vs. Reynolds, et al, No. 08-905, 559 U.S., 2010 WL 1655827 (2010) (decided shortly after the above article was published) also has expanded enforcement of the securities laws by loosening the restrictions on private securities fraud litigation. (The article describes the arguments and options for decision presented to the Court.)

In its April 27, 2010, ruling the Supreme Court adopted an interpretation of the period of limitations on bringing securities fraud actions in court which is significantly less restrictive of plaintiffs than many cases in the lower courts have been. Because private lawsuits under Rule 10b-5 for securities fraud act as private enforcement devices, the result will undoubtedly be greater enforcement of the securities laws.

The full article is available from the author or from Thomson-Reuters. Thomson Reuters Inside the Minds series provides legal and business intelligence from lawyers and C-Level executives (CEO,CFO, CTO, CMO, Partner).

Social Media – Linked In, Facebook, Twitter, etc. have become a major method of communicating not only personal information, but also business information. And with so many possible clients utilizing it, small broker-dealers must consider using it in their business in order to just keep up with their competition.

But the characteristics of social media which are so positive – quickness and freedom of the user and of responses of third parties – cause difficulty in this industry, which requires control and supervision of all communications with the public. The Financial Industry Regulatory Authority (“FINRA”), in its January 2010 Regulatory Notice 10-06, guides – and restricts – broker-dealers in their use of social media.

I have asked a “guest writer” to advise on these issues: Cliff Campeau, a Partner with Evolutionize, LLC. Cliff’s statements and opinions in this piece are his, and are not necessarily mine or those of Danna McKitrick, P.C.

The “Business Memo” part of this newsletter continues the discussion of theories of, and avoidance of, liability of broker-dealers (“BDs”) and registered representatives (“RRs”). This time we analyze “unauthorized trading.”

If you would like copies of past issues or have any questions arising from the contents of this or past issues, please call or e-mail me, Joe Soraghan, at (314) 726-1000 or jsoraghan@dmfirm.com at no charge.

A Social Media Perspective for Financial Advisors

Deferred Variable Annuities: The New Requirements and Some Problems, Solutions and Considerations

By: Cliff Campeau (cliffc@evolutionizemypractice.com)

Is your practice currently enjoying double-digit annual revenue increases? Are you profitably expanding your client base? Have you reduced the time required to convert prospects to clients? If you answered “yes” to any of these questions, read no further.

On the other hand, if you’re wrestling with how you are going to grow your practice, increasing assets under management and boosting profit margins, consider “Social Media Marketing.” But be aware of its risks.

Social media is here to stay. Consider that consumer activity on social media and blogging sites comprised 17% of all time on the internet in August, 2009, up from 6% the prior year, according to Nielsen.

Take a look at usage levels and you can begin to sense the impact social networking can have on extending your firm’s reach:

• 30 million LinkedIn users in the U.S. source: LinkedIn, February, 2010)
• 400 million Facebook users globally, with the average user spending 55 minutes per day (source: Facebook, January, 2010)
• 50 million Tweets per day (source: Twitter, February, 2010)

Perhaps at this point we can agree that leveraging the power of social media has the potential to dramatically impact your business development efforts. . . with minimal investment of time and money.

So what are you waiting for? Perhaps it is the fact that your compliance partner has not provided a clear path forward for incorporating social media into your firm’s marketing efforts. Clearly, there are guidelines that we must follow and grey areas that we must navigate as we manage our businesses on a daily basis. The same is true for social networking.

FINRA to the Rescue

The good news is that in January, 2010 FINRA issued Regulatory Notice 10-06, providing guidance on the use of blogs and social networking sites. Their guidance provides welcome clarity around the compliant use of social media.

Framework for Social Media Success

It is our goal to provide you with basic advice for advancing your consideration of social media to enhance communications with your investors, increase the number of leads you generate and convert more prospects into clients.

All communication on social networks and blog sites should be treated the same as personal or written communications. Therefore, the following rules apply:

• E-mail messages sent to 25 or more prospects is considered to be “sales literature.” E-mail to fewer than 25 prospects or customers should be considered “correspondence.”
• Publicly available websites, such as Twitter or YouTube are considered “advertisements,” while password protected sites such as LinkedIn, Facebook or MySpace are considered “sales literature.”
• Chat room discussions and/or posts on LinkedIn, Facebook for example, are considered “public appearances.”

With these guidelines established by FINRA, your compliance partner will be able to guide you on the need for pre-approval or not to allow your firm to remain compliant with FINRA’s Communications Rule 13. in conjunction with your compliance partner, it is recommended that you develop policies and procedures that suit your risk profile and ability to pre-approve or post-review your firm=s social media activity.

What we would like to focus on for this article are the following operational considerations for implementing a compliant social media program:

1. Record Keeping
2. 3rd Party Posts
3. Recommendations and Testimonials

Record Keeping

FINRA requires that advertisements and sales literature be retained for a period of three years. This includes advisor e-mails, posts or instant messaging activity related to the firm’s business, whether sent from the office, home or elsewhere. Status updates, Tweets and comparable social networking activity would fall under the advertisement and or sales literature guidelines. Sending an e-mail or instant message via a social network would be considered correspondence. Both of these scenarios, in conjunction with any network profile updates, must be captured and maintained.

Therefore, your firm will need to implement a social networking monitoring and archiving service. There are a range of software or freeware solutions providers that serve the Broker-Dealer/RIA market, providing a range of social network access control, monitoring and archiving services.

3rd Party Posts

FINRA does not generally consider 3rd party posts by customers as the firm’s communication, unless the firm was involved in producing, approving or endorsing the content. Hence, 3rd party posts can become attributable to the firm if they are republished or re-Tweeted. Commenting on a LinkedIn post or “Favoriting” a post on Twitter, for example, may be considered an endorsement and therefore attributable to the firm. This area is best addressed by 1) Limiting the advisers in the firm who are authorized to participate in the development of content and/or to post, comment or re-Tweet; 2) Training the firm’s advisers on the appropriate guidelines established by the firm related to this area; and 3) Working with your compliance partner to identify pre/post review parameters for posts and re-Tweets.

Recommendations & Testimonials

FINRA Notice 10-06 recognizes that it is beyond the reach of your firm to control or monitor all communication on the various social networks, and as a result acknowledges the fact that the 3rd party posts are generally not attributable to your firm’s communications. We do, however, want to address one particular social network. . .LinkedIn. LinkedIn provides its members the opportunity to solicit and approve endorsements from one’s contact network. FINRA has consistently advised against any form of direct or indirect testimonial “of any kind” concerning the adviser, their advice, analysis, reports or service proffered. Hence we would counsel your firm to develop a policy that prohibits advisers from soliciting or exhibiting any testimonials of any kind on LinkedIn or any of its social networks.

Conclusion

According to the Financial Planning Association, 43% of advisors surveyed are now using networking or social media sites.  Further, 60% of those advisors indicate that they have generated at least 16 leads per year form their activity on these sites.

Converting one lead to a client can offset the time and money invested in formulation, implementing, and monitoring a compliant social media marketing program.

Business Memo– Other Claims Against You: Unauthorized Trading

by Joseph R. Soraghan (jsoraghan@dmfirm.com)

I continue here the theme of the past few issues studying the claims most frequently brought against BDs and RRs in courts and arbitration. In past issues we have discussed common law fraud, negligence and breach of fiduciary duty. Yet to be discussed are Respondeat Superior, Unauthorized Trading and Failure to Supervise. In this issue I will discuss unauthorized trading.

Notwithstanding the offense and the concept of “unauthorized trading” are so important and commonplace, it is not defined in any statute or in any regulation of the Financial Industry Regulatory Authority (FINRA) or any other securities enforcement body. Rather, the Securities and Exchange Commission has simply declared that “unauthorized trading” (without defining it) constitutes a violation of the FINRA and NYSE Rules requiring members to “observe high standards of commercial honor and just and equitable principles of trade” (the “Fair Dealing Rule”). And FINRA then interpreted its Fair Dealing Rule in IM-23-2(4)(A)(iii) to include “causing the execution of transactions which are unauthorized by customers or the sending of confirmations in order to cause customers to accept transactions not actually agreed upon.”

The Easy Cases. There are scenarios in which the fact of a transaction being unauthorized is clear. In these are situations the client/customer alleges that no communication concerning the contested transaction occurred between himself and his broker. Typical evidence of this is telephone records showing

No telephone calls between them on or near the date of the trade, the customer being out of town and out of reach, etc.

But it is More Complicated Than That: Unauthorized Trading When There IS Communication. But unauthorized trading does occur (and customers can recover for it) even when it is clear that communications concerning the contested transactions DID occur. This can occur when (i) it is not clear whether an order was actually placed, or (ii) an order was placed but the customer did not understand the recommended transaction.

Most frequently, in a telephone conference the RR discusses a recommendation with the client, the client says yes to the trade, and the RR hangs up and executes the trade. Another but less frequent scenario is a meeting between the RR and customer in which the RR makes his recommendation. Industry rules do not require written authorization from the customer. And most clients, because they trust their broker and they are often in a hurry, prefer this to spending time “with the paperwork.”

Unclear Orders

But suppose the RR makes his recommendation and the customer simply says, “That’s a good idea.” Is that an order? Successful claims against brokers have occurred even in scenarios with more definiteness than this. The RR should be trained to require the customer to use clear language in ordering, and even better, to also note his or her wording briefly in writing, particularly for large or unusual orders.

Trades not Fully Understood by Clients

Courts generally hold that a customer can authorize only trades which he or she understands. Of course, that means that the customer must be explained the type of trade (buy or sell, etc.), the specific security being purchased, how many shares/units are to be purchased and the price. It is probable that a court or an arbitration panel would also require that the RR be certain that the customer understands the nature of the security (e.g., a complicated derivative versus common stock), any recent news, particularly negative, about the issuer of the security, whether the broker-dealer is a market maker or a consultant to the issuer, etc.

The theory of these cases is that an order made without knowledge and an understanding of all necessary information about the trade is one made without authority. Of course, the more exotic and complicated the security or the transaction, the less likely an arbitration panel is to find the client understood and thus authorized the trade. Essentially, securities law requires that any investor, sophisticated or not, be informed of, and understand, prior to a trade all facts concerning the trade and the issuer involved which a reasonable investor would want to know in deciding whether to make the trade. If an investor, on the stand in a hearing when asked “would you have made this trade had you known this fact (e.g., that the company is in a dying industry) might answer “no,” the RR should be certain to inform the investor of that fact.

Supervision: Indications of Unauthorized Trading

The broker-dealer has available various “red flags” which should be the basis of its computer-based supervisory system. That system should monitor for the following, based on the customer’s financial status, objectives and risk profile:

• Evidence of excessive activity;
• In and out trading (buying and selling the same or similar securities in short periods of time);
• Trading beyond the customer’s resources;
• Consistent and similar trading patterns in most of the bro- ker’s accounts;
• Large and suspicious margin balances;
• One or a few account’s commissions constituting a large portion of the broker’s total production; and
• Unusual trading.

The last item, requiring a bit of explanation, is perhaps the most trustworthy indication. By “unusual trading” I mean trades which do not fall within the parameters set by the customer’s net worth, risk tolerance, objectives, and expertise, and particularly his past investment history.

Some other warning signs for the supervisor are knowledge of an RR’s past unauthorized trading violations at prior brokerage firms, the broker’s unwarranted confidence in his own recommendations, or his or her gambling or other financial problems. Acting upon these latter signs may prevent unauthorized trading before it occurs.

**********

The Genesis of this Newsletter

I have represented large and small St. Louis region broker-dealers, their registered representatives and investment advisors for many years. I have wondered why there is no organization of, or publications dedicated to, the community of small broker-dealers and small banks with securities activities in that region. It also seems to me, based upon that experience, that questions arise of particular interest to that community, coverage of which benefits both that community and its clients.

Therefore, I publish this informal letter to that community, on an occasional and not necessarily periodic basis, noting and discussing (1) questions and events of interest to the small broker-dealer community as they arise; and (2) business memos on topics of on-going interest. Also, if you know of topics or questions which you would like presented, and which are of general interest to small broker-dealers, please let me know.

It might read: “Is everyone OK with Bob’s carpet cleaning bid? We can get a really good deal if we sign with him today. Let me know ASAP.” You get a quick response and business is accomplished right from your desk, or your smartphone. There’s just one problem. It’s illegal. No, I don’t mean you’ll get arrested. I mean that voting by e-mail isn’t enforceable. Let’s say you are the President (or committee chair) of a local charity, chamber or foundation, and you send out that carpet cleaning e-mail. A majority of your board (committee) members approve without comment. You sign the contract.

Your regular meeting comes up the next week, and a couple of the members (who were on vacation when the e-mail went out) arrive with information about Bob the carpet cleaner. While he’s inexpensive, he’s also a convicted felon and he’s been known to say some pretty unflattering things about your organization. More importantly, a board member’s uncle is in the business and made a major contribution last year. Let’s give the contract to uncle Vinnie, they say; and before you know it, Vinnie is hired. But you already signed the contract in reliance on that e-mail.

What you now discover is that voting by e-mail is not enforceable, i.e. it doesn’t count. Result: you are personally on the hook for that contract you signed. Missouri statutes simply don’t permit a board or committee to vote by e-mail. People think I’m crazy when I tell them this. But the reality is that boards and committees cannot act by correspondence (e.g. e-mail); they can only act by meeting or by unanimous written consent. A meeting is defined by law as an event where everyone can be heard “simultaneously.” You need not see everyone, but everyone must be “present” so you can all hear the debate and everyone’s comments can be heard by everyone in attendance. It’s hard to believe that meeting at a coffee shop or patching in people by telephone works and a simple e-mail doesn’t; but it’s true.

Why, you say? First, remember that e-mail is, well, just mail. It’s correspondence. Very speedy correspondence, but still just a letter. Second, let’s remember that meetings were the only efficient way to accomplish business before the electronic age; so it’s partly historical (how would we feel if the founding fathers wrote and voted on the constitution by correspondence?). But, most importantly it’s about requiring everyone to be present for the debate. My example above shows what can happen when the open debate is missed. Comment alone is not debate. “Reply all” may seem like open debate, but it’s not. Bodies (boards and committees) are established to give a group of people responsibility and groups have always been required to meet and discuss as a critical part of making decisions.

In short, you need to know three things:

1. Meetings are unnecessary if all who are entitled to vote agree by (i.e. sign) a “written consent”, so the e-mail may be enforceable if everyone agrees, i.e. it’s a unanimous vote (and every e-mail is copied and kept with your meeting minutes).
2. If it’s not unanimous, make very sure that it is approved at the next board/committee meeting (and included in meeting minutes).
3. If it’s a major decision, skip the e-mail (or make sure your house needs a lot of carpet cleaning).

In your business (i.e. other than non-profit organizations) there may be instances when decision by e-mail is permissible, but only if the governing documents clearly spell it out, so check with your attorney first.

Identity theft is rampant in today’s society. As many as ten million individuals per year become victims of identity theft and the number of medical identity theft cases are on the rise. In response to this growing problem, several federal agencies jointly promulgated regulations that require certain entities to implement a plan to detect, prevent, and correct identity theft. The “Red Flags Rule” applies to various types of entities, including most healthcare providers. Thus, entities ranging from a small doctor’s office to a hospital must be in compliance with the new Red Flags Rule by the date on which the Federal Trade Commission (“FTC”) will begin enforcing the Rule.   After that date, an entity may be penalized up to $3,500 per violation. Thus, healthcare providers need to take steps to comply, including creating an Identity Theft Prevention Program.

Before understanding the Rule, a healthcare provider must determine whether it is subject to the Rule in the first place. Under the Red Flags Rule, any “creditor” that offers or maintains one or more “covered accounts” is required to develop and implement a written Identity Theft Prevention Program. A “creditor” is defined as any person who regularly extends, renews, or continues credit. Healthcare providers will be considered a “creditor” if they regularly bill patients after the completion of services, allow payment plans after services have been rendered, or aid patients in obtaining credit from other sources (see note).

Under the Rule, a “covered account” is defined as (1) an account a creditor offers or maintains that involves or is designed to permit multiple payments or transactions, and (2) any other account the creditor offers or maintains for which there is a reasonably foreseeable risk of identity theft. The second portion of the definition is very broad and may include records that an entity may not recognize as a “covered account.” For healthcare providers, this definition of “covered account” generally encompasses patient and employee records. Thus, the vast majority of healthcare providers are subject to the Red Flags Rule and must comply.

Development of Identity Theft Prevention Program

With proper guidance, a healthcare provider can establish an Identity Theft Prevention Program that will comply with the Red Flags Rule. The Red Flags Rule does not require any specific practices or procedures, because it provides flexibility to tailor a Program to the nature of the business and the risks its faces. In other words, the Program is scalable to the size and complexity of the entity and the nature and scope of its activities. In the case of a company at high risk for identity theft, such as a large hospital system, the Program may need more robust procedures, including strict verification procedures for each and every patient’s identity. However, such extensive procedures would be inappropriate for a low-risk company, such as a solo practitioner, who can identify and verify each patient. Thus, there are no set procedures for a Program, but it is a discretionary decision that should be made by someone knowledgeable about the business and its day-to-day operations.

Although the Red Flags Rule does not establish specific procedures, it does require that any Program include “reasonable” policies and procedures to:

• Identify relevant patterns, practices, and specific kinds of activity that may be “red flags” signaling possible identity theft;
• Detect red flags;
• Respond to those detected red flags to prevent and mitigate identity theft; and 
• Update the Program periodically to reflect changes in identity theft risks.

For red flag identification, a healthcare provider should review its own experiences with identity theft and incorporate that knowledge into the Program. Red flags should include concerns raised by patients — both internally and externally. Some examples of such red flags could be suspicious account activity, inconsistent personally identifying information, inconsistent medical histories, and possibly altered identification documents. For red flag detection, a healthcare provider should state what procedures will be in place in the day-to-day operations to detect red flags, which may include procedures to authenticate a new patient and verify the validity of any changed information. For prevention and mitigation of identity theft, a healthcare provider should take necessary steps such as notifying the real patient or law enforcement, monitoring an account and correcting the medical record. Lastly, a healthcare provider must periodically review and reflect on its experience with identity theft and update its Program to verify the effectiveness of the Program.

Even if the Red Flags Rule does not apply to your practice, it may still be advisable to develop an Identity Theft Prevention Program. In the event of a medical identity theft, the federal government and health insurance companies may require a healthcare provider to pay reimbursement for claims made. Furthermore, if a healthcare provider files a claim and later learns that medical identity theft has occurred without taking corrective measures, the provider may be subject to criminal and civil penalties based upon fraud. Importantly, medical identity theft also puts the life of the victim at risk, which plainly could lead to potential civil liability for a healthcare provider. False entries in a medical history can lead to improper medical treatment, denial or exhaustion of health insurance, or an individual’s uninsurability for life or health insurance. An Identity Theft Prevention Programis an important tool for a healthcare provider to minimize its liability and risks, and risks to its patients, even if it is not subject to the new Red Flags Rule.

The task of developing an Identity Theft Prevention Programmay seem daunting, but a provider should not feel overwhelmed. A successful Program for a healthcare provider will build on existing efforts already in use to combat fraud and protect patient privacy. A healthcare provider should review and adapt its current tools used to comply with HIPAA and state privacy, security, and breach notification laws to satisfy the new Red Flags Rule. Thus, with its current tools and available resources, a healthcare provider is already on the way to developing a compliant Identity Theft Prevention Program.

Implementation and Administration

Healthcare providers must be mindful of key issues regarding the implementation and administration of an Identity Theft Prevention Program. Staff training and delegation of duties may generate issues for a healthcare provider attempting to implement and administer such a Program. Internal staff must be trained as necessary. If a healthcare provider outsources or subcontracts portions of its operations that would be covered by the Red Flags Rule, then the Program must address how the provider will monitor the contractor’s compliance. Furthermore, periodic supervision and review after any incident of identity theft will be invaluable to the proper functioning of a Program.

Management and the board of directors of a healthcare provider are required by the Red Flags Rule to play a central role in the creation, implementation and continued administration of the Program. According to the regulations, either the board of directors, or an appropriate committee thereof, must approve the initial written Program. Other responsibilities include assigning specific responsibility for the Program’s implementation, reviewing staff reports about how the practice is complying with the Rule, and approving important changes to the Program. The board of directors should also receive at least annual reports regarding the administration of the Program. Thus, it is critical that a board of directors or management remain active in the administration of the Program to ensure compliance with the Rule. Mere creation of a Program will not shield a healthcare provider from civil fines under the Red Flags Rule.

Conclusion

When the FTC begins enforcing the Red Flags Rule, it will require any entity that regularly extends, renews, or continues credit concerning a “covered account” to develop and implement an Identity Theft Prevention Program. The Rule does not set specific procedures, but the Program must identify how the entity will:

• Identify red flags; 
• Detect red flags; 
• Prevent and mitigate identity theft; and 
• Update its Program.

As long as a healthcare provider begins with its current tools and available resources, it can develop a Program that complies with the Rule. In the implementation and administration, a healthcare provider must be mindful of certain issues, such as delegation of operations, and its board of directors and management must maintain periodic supervision. Although the task may seem daunting, a healthcare provider can successfully comply with the requirements of the new Red Flags Rule, if it takes the proper steps now.

This article was co-authored by Laura Gerdes Long & David Binder.

This HHS publication triggers two key deadlines, one commencing September 23, 2009, when employers and health care providers (“covered entities”) will be required to comply with the Act’s security breach notification requirements; and, the other, is February 22, 2010, the 180 day enforcement grace period announced by HHS. Accordingly, during this 180 day grace period, covered entities need to digest the new requirements, revise existing HIPAA policies and procedures and develop new ones, put in place a security incident response plan, train employees, confer with business associates about security breach response and negotiate modifications to existing business associate agreements. Employers and health care providers who discover a security breach after that date and fail to provide the required notices may be targeted for an enforcement action.

A security breach notification will only apply to “unsecured PHI”. PHI that is not encrypted or completely destroyed is considered “unsecured” by HHS. The only way, generally, that HHS has said that PHI would be considered “secured” is if it encrypted or completely destroyed. If that is the case, then the covered entity does not need to develop internal procedures for notification of security breaches. In any event, those practices should review their existing Notice of Privacy Practices to update it with respect to the new notification rule.

WHAT IS A “BREACH” REQUIRING NOTIFICATION UNDER THE RULE?

HHS has defined “breach” to mean a use or disclosure of unsecured PHI in violation of the HIPAA Privacy Rule. As we learned when the Privacy Rule was implemented, PHI generally cannot be used or disclosed without the individual’s prior, written authorization. However, the Privacy Rule also contains a laundry list of exceptions to the general rule. Consequently, covered entities may often have to scrutinize the Privacy Rule to determine whether a breach, indeed, even occurred. Hence, a breach will only occur if the following requirements are met:

• the information is “unsecure” PHI;
• the information was used or disclosed in an unauthorized manner (see, HIPAA Privacy Rule); and
• the use or disclosure poses a “significant risk of financial, reputational, or other harm to the individual”. To determine if such a harm has occurred, the covered entity must review factors such as:

(a) to whom the information was disclosed;
(b) the type of information disclosed;
(c) what steps were taken that mitigate the potential harm to the individual; and
(d) whether the use or disclosure falls under an exception listed in the statute. The exceptions are:

(i) Unintentional access by a covered entity’s or business associate’s employee. Such access must be in good faith, within the employee’s course and scope of employment and not result in further use or disclosure. HHS provided an example of a nurse mistakenly sending an e-mail with PHI to a hospital billing employee, who opened it in the normal course of business; however, the billing employee deletes the e-mail and notifies the nurse.
(ii) Inadvertent disclosure from one covered entity or business associate employee to another similarly situated employee. HHS explains that the information should not be further used and that “similarly situated” means both employees must be authorized to access the information. For example, a doctor and billing employee may be similarly situated, because they are both authorized to view PHI, but a doctor and a receptionist may not be or, for example, when a doctor inadvertently gives a patient chart to a nurse who is not responsible for the doctor’s patients.
(iii)The recipient would not reasonably have been able to retain the information. For example, a nurse gives out incorrect discharge papers, but immediately discovers the error and takes them back.

NOTIFICATION OF BREACHES

If a breach occurs, then the covered entity must notify the individual “without unreasonable delay”, but no later than 60 days after discovery of the breach. HHS notes that, if a business associate is an “agent” of the covered entity, the business associate’s discovery of the breach will be imputed to the covered entity.

If the breach involves 500 or more individuals, the covered entity must notify HHS at the same time it notifies the affected individuals. Breaches involving fewer than 500 individuals must be logged, and a log must be submitted to HHS by March 1st of the following calendar year.

There are also provisions for what needs to be done if a breach involves 500 or more individuals from an entire state or jurisdiction. Since business associates are impacted by the discovery and breach notification, covered entities should address those matters in their business associates agreements or vendor agreements, by rewriting or amending those agreements.

WHAT MUST THE NOTICE SAY?

The Notice must be written in plain language and contain five (5) subject areas:

1. a brief description of what happened, including the date of the breach and the date the breach was discovered, if known
2. the types of unsecured PHI involved in the breach (e.g., Social Security number, full name, date of birth, home address, account number, diagnosis)
3. steps that affected individuals can take to reduce the risk of harm from the breach
4. a brief description of the covered entity’s investigation, efforts to mitigate harm to affected individuals and steps taken to prevent a recurrence of breaches
5. contact information for people to ask questions and obtain information, including a toll-free telephone number, e-mail address, website or postal address.

HHS has devised electronic notification forms on its website for submitting notice of breach to the Secretary. These requirements are in accord with the Privacy Rule that requires each covered entity to take reasonable steps to mitigate the harmful effects of an unauthorized use or disclosure of PHI.

There are also provisions for substitute notice under the HHS rules.

THE EFFECT ON STATE SECURITY BREACH NOTIFICATION LAWS

HHS has said that the HIPAA requirements do not pre-empt state notice law and that covered entities will be required to comply with both sets of laws when both are applicable. For example, where a state law requires notification within five days, HHS says notice within this period also would satisfy the new HIPAA requirements, so the two laws do not conflict. Similarly, if a state law requires additional elements be included in a notice, HHS says there would be no conflict because a covered entity could develop a notice that satisfies both laws.

STEPS FOR COVERED ENTITIES

• Establish notice procedures for a security breach response plan
• Implement systems for detecting a security breach
• Maintain a breach log
• Train workforce members on their role in responding to a security breach
• Revise business associate agreements to address security breaches
• Revise HIPAA policies and procedures regarding training, complaints, and sanctions, as applicable
• Update address lists for patients and/or plan participants to reduce the number of return notices in the event of a breach.

This is only a short review of considerations. Consultation with an attorney is advised to ensure that all matters specific to your practice have been covered. If you have further questions or if you would like to set up an appointment to discuss your practice’s protected health information needs, please contact Laura Gerdes Long, Esq.

Social Security provides a necessary financial supplement to any individual with a disability as defined under federal law. There are three types of social security available to an individual with a disability. Social Security Disability Insurance is available to those individuals who have worked at least 10 years and do not currently earn more than $980.00 a month from employment. For those individuals whose disability began before the age of 22, the work history is based upon the individual’s parent. Supplemental Security Income is available to any disabled individual who meets the “limited income and resources” test. The third benefit available under Social Security is Medicare. Medicare is a government health insurance program.

Social Security Disability Insurance

Individuals whose disability began before the age of 22 may be eligible to receive Social Security Disability Insurance (SSDI), or what people commonly refer to as “Social Security.” Typically, an individual receives SSDI based upon his or her work history and amount of prior earnings. However, an adult disabled before the age of 22 may have little or no prior earnings and would not typically qualify for SSDI.

Fortunately, an individual over the age of 18 whose disability began before the age of 22 can receive Social Security benefits based upon his or her parents’ eligibility for Social Security. Instead of basing eligibility and the amount of benefits on the disabled individual’s work history, these items are based upon the parent’s work history and prior earnings. Thus, a disabled individual may be eligible to receive Social Security even though he or she has never been able to work.

There are also restrictions on the individual’s earned income. If the individual is employed, he or she cannot earn more than $980 per month from employment or the individual will be disqualified from receiving SSDI benefits.

Supplemental Security Income

An individual may be eligible to receive Supplemental Security Income (SSI) if he or she is disabled and receives under $1,433 from wages or under $694 in income not from wages. SSI is also available to minors who have been diagnosed with a disability; however, the income and financial resources of the child’s parents or guardians will be taken into account when determining eligibility. Resources available to the family must not be over $2,000.00 with certain exclusions for the family home and vehicle.

In addition to the asset limitations, the child must satisfy the following requirements: (1) he or she has a physical or mental condition (or combination thereof) which results in “marked and severe functional limitations;” and (2) these debilitative conditions must be expected to continue for at least 12 months, or to result in death.

The Social Security Administration will review all of the information regarding the child’s disability and may ask for further medical and school records, if such records are available. Determinations of disability may take between three to five months. However, there are 50 medical conditions which will warrant immediate approval for SSI, including but not limited to: cerebral palsy, down syndrome, muscular dystrophy and severe mental retardation.

When a child turns 18, the criteria the Social Security Administration (SSA) uses in determining if that child is eligible for SSI changes. The parent or guardians’ financial status is no longer taken into account, and only the individual’s income and resources will be used in determining eligibility. Further, the SSA utilizes the adult criteria, instead of the child criteria, in determining if the individual is disabled so as to allow for SSI.

Medicare

Adults who receive SSDI benefits for more than 24 months, are automatically eligible for Medicare. An individual who is receiving the benefits will receive his or her card in the mail in the 25th month of the individual’s approval for disability benefits.

To apply for Social Security benefits, call 1-800-772-1213 or visit your local Security Office. When applying, make sure to have available the applicant’s social security number card, as well as birth certificate. If a third party is applying for social security for the disabled individual, that third party must have the individual’s social security information available as well. A parent or other family member may also apply to become the representative payee in order to receive the funds from the SSA.

Belleville East High School Hosts Inaugural Special Needs Prom

On May 16, 2009, special education students at Belleville East High School had an experience which, although common to most high school students, was a first for many of these students—Prom.

The event took six months of planning and, with the help of numerous area vendors, more than $1,400 worth of goods and services were donated. For only $20 a ticket, students were able to dine on cuisine from an area restaurant and dance the night away at the Hilton Hotel in Shiloh, Illinois.

The event was sensory-friendly for its patrons, keeping the music volume to a lower level and cutting back on the bright lights and fanfare typically found at high school proms.

Ashley Creek, a special education teacher at Belleville East, organized the prom after a step-mom of one of her students called her to suggest the idea.

Although Creek noted the hard work it took to put on the event, she believed that it will most likely become an annual event. “Every person, no matter their abilities,” said Creek, “should be able to have a Junior/Senior prom.” She has already began planning for Spring 2010.

Illinois Extends Dependent Coverage for Adult Children to Age Twenty-Six

Beginning June 1, 2009, Illinois law 215 Ill. Comp. Stat. 5/356z.12 requires all individual and group health insurance and HMO contracts to give parent policyholders the right to elect coverage for qualifying dependents up to age 26 and up to age 30 for military veteran dependents. Health coverage that is provided to state, county, and municipal employees must also meet these requirements. Enrollment in higher education is not a prerequisite for this extended coverage.

Dependents may be enrolled during the mandated 90-day enrollment period which insurance companies must provide to eligible parents. For policies that begin after June 1, 2009, the 90-day enrollment period must begin simultaneously with the start of the coverage. For existing insurance policies, the 90-day period will begin on the date the policy is amended or renewed.

It should be noted this law does not apply to insurance policies or HMO contracts which do not include dependent coverage, self-insured non-public employers, self-insured health and welfare plans and insurance policies or trusts issued in other states.

More information can be found on the State of Illinois Department of Insurance web site.

Guardianship

A guardian is an individual who is granted, by a court, the care and custody of a minor or person declared disabled or incapacitated. A conservator, on the other hand, is an individual appointed by a court to have care and control over a minor or a disabled person’s property. Although these phrases are sometimes used interchangeably, a guardian has care of an individual whereas a conservator has care of that individual’s property– a distinction with great legal importance. Therefore, it is necessary to petition a court for both guardianship and conservatorship. A conservatorship is only necessary in the event that a minor or a person declared incapacitated by the court has assets in his or her own name.

Although a guardian and conservator are frequently the same person, it is still necessary to petition a court for both guardianship and conservatorship. The appointment of guardianship and conservatorship is governed by Missouri law and is a legal process by which a probate court designates a guardian and/or conservator upon issuance of letters of guardianship or conservatorship. Because of the close relationship between guardianship and conservatorship, it is common to petition a court for conservatorship and guardianship at the same time.

Parents will be the natural guardians of their minor children if one or both of the parents are still living unless the court finds them to be unfit as guardians. Individuals, non-profit organizations or social service agencies may be appointed guardian.

The court shall make its appointment of a guardian and/or conservator in accordance with the incapacitated or disabled person’s most recent valid nomination of an eligible person qualified to serve as guardian. If there has been no such appointment, the court will appoint a family member or friend in order of statutory preference.

St. Louis Area Organizations Supporting Persons with Disabilities and Their Families

United Cerebral Palsy of Greater St. Louis

United Cerebral Palsy is a national organization serving more than 176,000 individuals with disabilities. The organization is facilitated by ambassadors who help to fulfill the organization’s mission to advance the independence, productivity and full citizenship of people with disabilities.

UCP supports the My Child Without Limits Program, which offers resources and information for families who have special needs children. Mychildwithoutlimits.org offers information regarding the understanding of Cerebral Palsy, traveling tips for families, speech therapy for those children afflicted with Cerebral Palsy and news updates.

The United Cerebral Palsy of Greater St. Louis office is located at 8645 Old Bonhomme Road, St. Louis, MO 63132-3999. They also may be reached by phone at (314) 994-1600. 

Gateway Chapter of the Autism Society of America

The Autism Society of America (ASA) is one of the nation’s largest volunteer organizations dedicated to those afflicted with Autism. The ASA provides resources and information to individuals across the entire diagnostic Autism spectrum.

While the ASA is partnered with many corporate sponsors, a partnership with AMC Theaters offers families in the St. Louis are an opportunity to watch newly released movies in an environment comfortable for autistic individuals. The Sensory Friendly Films programs shows movies with the auditorium lights turned up and the volume of the movie lowered. No previews or advertisements will be shown before the movie. Families are able to bring in their own gluten-free, casein-free snacks. While the safety of the audience is of primary consideration, audience members may also move around, dance, walk, shout or sing. Families can attend these Sensory Friendly Films locally at AMC West Olive 16, 12657 Olive St, Creve Coeur, MO 63141.

Supreme Court of the United States Decides Case in Favor of Special Needs Families

Forest Grove School District v. T.A.: a vital step towards ensuring all special needs children get the education they deserve

In June 2009, the Supreme Court decided a pivotal case for those families with special needs children in a case entitled Forest Grove School District v. T.A. The case involved the Individuals with Disabilities Education Act (IDEA), which requires States that receive federal funding to provide a “free and appropriate public education” (FAPE) for all children with disabilities.

For those children who are diagnosed to have disabilities, this FAPE will often include an “individualized education program,” (IEP) a program which brings together those individuals within the child’s educational circle—teachers, parents, assistants—and specifically targets the disabilities the student may encounter. The IEP will offer alternatives to overcome any disabilities the child may have that are hindering her ability to excel in the classroom. Actions taken as part of the child’s IEP can include extended test taking time, alternative test taking atmospheres and even a change in the test format.

In Forest Grove, the parents of T.A. sought reimbursement from the school district for tuition for the private school T.A. needed to attend so he could receive proper assistance with his disability at school. The district found T.A. to be without any disabilities, thereby claiming the IDEA was inapplicable. However, upon further examination by a private physician, T.A. was diagnosed with attention-deficit/hyperactivity disorder and other learning and memory disabilities. With this diagnosis, T.A.’s parents made the decision to place T.A. in a private school where his needs could be better met.

The school district argued that the 1997 amendments to IDEA did not require reimbursement for private school tuition when there had been no previous special-education services through the public school system. The school district claimed there were safe harbor provisions in the 1997 Amendments to IDEA which precluded the school district from being financially liable. However, the Court found that such a provision was only applicable to those schools who had correctly identified a disability and offered that child a FAPE—which the district had failed to do.

Ruling upon the case, the Supreme Court found in favor of T.A. stating that “having mandated that participating states provide a FAPE for every student, Congress could not have intended to require parents to either accept an inadequate public-school education pending adjudication of their claim or bear the cost of a private education if the court ultimately determined that the private placement was proper under the Act.”

This decision marks the continual trend in the courts towards providing individuals with disabilities the ability to thrive in their educational atmosphere.

Setback For Medicaid Payback Trusts

A Medicaid Payback Trust is a Special Needs Trust that is setup whenever a person is considered disabled under the Medicaid or Social Security Act. 42 USC § 1382c(a)(1). Often funds are received from a personal injury or other type of settlement and paid directly into the Medicaid Payback Trust. The federal government specifically allows for this type of Special Needs Trust (also known as a Supplemental Support Trust) under 42 USC 1396p(d)(4)(A), so long as all the requirements of the statute are met. The requirements include that upon the death of the beneficiary any funds remaining in the Medicaid Payback Trust are paid to reimburse Medicaid first. Any remaining funds are then paid to the beneficiaries. This Medicaid Payback Trust allows for a Medicaid recipient to have the necessary funds for purchase of necessities during the recipient’s life and allows the state to receive payment for the services it renders upon the recipient’s death.

A recent decision from the US District Court for the District of New Mexico, Hobbs ex rel. Hobbs v. Zenderman,  2009 WL 2750707 (C.A.10 (N.M.),2009), is a severe setback for the Special Needs Community . Steffan Hobbs had sued for injuries obtained in an automobile accident when he was six years old. Hobbs and his parents settled the case and agreed that $1.1 million dollars was to be put aside in “The Steffan Hobbs Medicaid Payback Trust”. The Trust purchased a one-half interest in the family’s home and paid Steffan Hobbs’ mother a monthly stipend for her care of Steffan. The family then applied for Medicaid through the State of New Mexico which found the Supplemental Support Trust to be a countable resource. The State of New Mexico found that the use of the Special Needs Trust funds for purchase of land and a family home was specifically prohibited under the state’s Medicaid policy. After exhausting his administrative appeals, Hobbs’ parents filed suit in the US District Court for the District of New Mexico alleging that the Medicaid Payback Trust had complied with the requirements of the federal law (1396p(d)(4)) and therefore could not be counted as a resource. The District Court found in favor of the State and the Hobbs’ family appealed.

The appellate court in Hobbs found that the “Medicaid statute exempting special needs trusts from requirement that state count certain trust assets as resources available to an individual when determining Medicaid eligibility did not unambiguously impose a binding obligation on the states to exempt such trusts when making eligibility determinations, but rather, left such a decision within the discretion of the states, and as such, statute could not support Medicaid claimant’s § 1983 claim against New Mexico authorities for violation of that provision. Social Security Act, § 1917(d)(4), 42 U.S.C.A. § 1396p(d)(4); 42 U.S.C.A. § 1983.”

This finding by the appellate court allows individual states to determine whether they will develop their own eligibility determinations for a Medicaid Payback Trust or even allow the Medicaid Payback Trust to be a countable resource for Medicaid purposes. The State of Missouri currently recognizes the elements set forth under the federal statute and allows for Medicaid Payback Trusts to be utilized and not count as a resource for the Medicaid Recipient. However, this could be changed by the legislature if the New Mexico decision stands.

To access the latest news and law regarding Special Needs Families please feel free to visit our blog, Beyond The Fine Print.

Planning Considerations for Children with Special Needs

Special Needs Families often need to convey more information to their other family members and friends about how to care for their child in the event that they would be unable to continue to do so. Next month, Danna McKitrick P.C. will be releasing checklists and other helpful forms that you can complete on our website and keep with your estate plan documents.

Information on the forms will include doctors, specialists, medications, daily routines, and other important information that someone would need to know about your child. This is especially helpful for non-verbal children who are unable to communicate their daily needs. The forms will be available for you to download and complete at your convenience. If you are a current client, I am happy to also keep this information in my file. You may fax, email, or mail me your completed forms.

I welcome your input on what information you would like to see included on the website. Also, if you have ideas for future topics, please do not hesitate to call or email me.

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In a struggling economy, employers have to make difficult decisions pertaining to their businesses and employees. Faced with “hopefully” temporary losses in business, many employers are forced to terminate employees losing their experience and knowledge. On the other hand, if the employer elects to reduce hours, the employees receive lesser pay and are ineligible to collect unemployment benefits.

Fortunately, employers do have a unique alternative under the Missouri Employment Security Law whereby they can retain their hourly workforce and reduce hours while at the same time allowing their employees to receive a proportional supplement of unemployment benefits. This article applies only to such programs that involve hourly-paid employees.

Shared Work Program-Unemployment

Under Missouri law, employers can develop a shared work program with the Division of Employment Security of the Missouri Department of Labor and Industrial Relations. The program allows an employer to decrease the working hours of a specific group of employees, which includes a specified department, shift, or other unit of three or more employees.

The affected employees can continue to work for the employer at a reduced number of hours and also receive unemployment benefits in proportion to the reduction in hours and pay. For example, if the employer reduces work hours by 20% to 32 hours per week, the employee will receive 20% of her weekly benefit amount under unemployment insurance. Thus, an employee who earns $2,500 per month and is entitled to a $300 weekly benefit amount would receive 80% of her pre-plan wages and $60 in benefits each week under the plan. This program allows the employer to retain the knowledge and experience of the employees without having to drain the cash reserves of the company due to unneeded work hours.

Requirements to File – Missouri Law

A shared work plan under this program must satisfy the following requirements:

1. The plan applies to an affected unit of not less than three employees; 
2. The plan applies to at least 10% of the employees in the affected unit; 
3. The plan reduces the normal weekly hours of work of the employees by not less than 20% and not more than 40%; 
4. The plan describes the manner in which the employer treats the fringe benefits of each employee in the affected unit; 
5. The employer certifies that the implementation of a shared work plan is in lieu of temporary layoffs that would affect at least 10% of the employees in the affected unit and that would result in an equivalent reduction in work hours; and 
6. The plan must be approved by the collective bargaining agent if any of the employees in the plan are covered by a collective bargaining agreement.

Submission to Division of Unemployment

When an employer has drafted a shared work plan, it must submit the plan to the Division of Employment Security. The Division will accept or deny the plan within 30 days of receipt. If the plan is denied, the employer may either elect to exhaust its administrative remedies or file a new plan with the Division within 45 days. Any accepted plan remains in effect for only 12 full months.

The employer has the right to modify the plan to meet changed circumstances, but the modification cannot affect the expiration date originally set by the plan. The employer can always freely suspend the plan in order to return the employees to full-time employment. Given the restriction on plan modifications, it is critical for an employer to properly plan before implementing or modifying a shared work program.

Requirements to Maintain Plan

Once the plan is accepted by the Division, the employees affected still must satisfy the following requirements to receive unemployment benefits:

1. The individual is able to work, is available for work and works all available hours with the employer; 
2. The individual does not work more than the reduced hours specified in the plan; and 
3. The individual’s normal weekly hours of work have been reduced by at least 20% but not more than 40%, with a corresponding reduction in wages.

Under the shared work plan, the employee is under no obligation to seek other employment and will not be denied benefits on this ground. However, the employee may not receive shared work benefits for more than 26 calendar weeks during the 12-month plan.

Ramifications of Plan on Employer Tax Rates

Although the shared work program can aid the employer in reducing the number of employees who are terminated, the program will still affect the employer’s unemployment taxes in the same manner and to the same extent as other chargebacks of benefits. Thus, all benefits paid under the plan will be charged to the account of the participating employer for use in computing general tax rates. Although this will increase the employer’s tax rate, it may cause more or less of an economic impact than a termination depending upon the structure of the shared work plan. Therefore, an employer must carefully set the terms of the plan so it remains advantageous despite the increased unemployment tax rate.

With the shared work program, Missouri law provides employers with an opportunity to retain their full workforce through a reduction in hours and a proportional supplement of unemployment benefits. However, there are some drawbacks to the program such as the employer’s increase in unemployment tax rates. Depending upon the circumstances, the program may be a less attractive solution than an outright termination of employees. Despite these issues, the shared work program may provide Missouri employers and their employees a unique reduced hour program.

This article was co-authored by Ruth Binger & David Binder.

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Secondly, the EFCA forces companies to reach an agreement with the union within 90 days of the National Labor Relations Board certification of the union or either party can demand mediation. If an agreement is not reached at the mediation table within 30 days, the contract is referred to binding arbitration and the arbitration results will then be binding on both parties for two years.

Finally, the EFCA grants the Board the power to award liquidated damages at twice the amount of back pay and to impose civil penalties of up to $20,000 per violation.

These changes may seem overwhelming, unreasonable, and highly skewed in the union’s favor, yet the company is still in control. The company has the opportunity to create a culture now that encourages informed, engaged, and productive workers that have little incentive to organize.

Create your own competitive advantage in your industry by taking the actions below so the union walks away from your workforce and shows up at a competitor’s door instead. Wage your election campaign now by thinking and acting proactively!

1. Competitive Wages & Benefits—Outside & Inside

Companies should evaluate wages of similarly situated employees of other companies to determine if their workers are being paid a competitive wage. Similarly, companies should analyze their internal compensation system (salary/wage ranges and rates) to determine if compensation is set for “position” rather than individual and whether a uniform approach is used for length of service and experience. If there are disparities that cannot be justified, they should be evaluated.

2. Communication with Employees—What are the Wants?

Companies should allow employees to communicate with management regarding complaints and concerns. Methods of communication include having open door policies when appropriate, surveys, suggestion boxes, bulletin boards, job orientation, forms which communicate to the employee various hidden employee benefits, and company events such as picnics and holiday parties.

3. Education of Employees

Employees should be educated about what changes will occur should they unionize. Companies should point out that unionization brings changes to the company environment such as lack of ability to communicate directly with management, dues and fees which may go to international union efforts and political causes, fines for crossing picket lines, and employees being replaced if the union strikes.

4. Identification/Training of Supervisors

True supervisors may not vote in a union election. Thus, it is critical to identify who the supervisors are within the organization and define their job responsibility. Passage of the Re-Employment of Skilled Professional Employees and Construction Trade Workers Act (“Respect”) would cause workers who do not spend more than 50 percent of their time directly supervising others to lose their classification as a supervisor (currently only 10 to 15 percent) and thus be part of the proposed employee unit.

Analyze the duties of your employees to determine who is tasked with supervisory jobs and define their titles as such. Once identified, training, attitude and ownership mentality is crucial. Taking ownership of policies and decisions of management and not blaming unpopular decisions on management is essential to leadership.

Finally, train supervisors on the “do” and the “don’t do” of a union campaign—what to say and not to say, what management acts are prohibited and the importance of enforcing policies consistently.

5. Education of Management

Management should be educated as to the company’s position and strategy for dealing with union activity. Being familiar with whether competitors are facing unionization, having an ability to identify the major unions in your area, researching their organizing tendencies, strengths and tactics, and recognizing union advertising are critical.

Management should be able to respond to employees’ questions about union activity taking place within the company.

6. Obtain Legal Counsel

Legal counsel can help you review employment agreements, the company’s bulletin board announcements, confidentiality policies, and assist with the education of management about labor laws. Legal counsel can also help you train your management on how to wage a legal campaign. Legal counsel can also assist with terminating employees with a history of poor work performance.

7. Hiring & Promotion Policies—Who are the Agitators?

Companies should regularly review their hiring and promotion policies. Processes should include centralized final review by a human resource manager to ensure supervisors are consistent and use appropriate documentation. Poor and marginal employees almost always vote for a union; therefore, such employees should be terminated as soon as poor work performance is discovered.

Consistent and regular review processes that use objective determination to the extent possible and require specific examples and documentation in subjective cases will assist in indentifying both employees with stellar work performance and those with marginal work performance. Ensure that disciplinary action is reflected on employee’s performance evaluations.

8. Quality Working Conditions

Working conditions should be clean and safe. Companies should work to identify areas that could use improvement and maintain general safety standards.

9. Resolve Complaints Efficiently & Effectively

Companies should make sure the right people are placed in supervisory positions. Complaints by employees should be immediately and fairly resolved. The process should be viewed as fair and not needing the outside influence of a union. If employees complain about favoritism or disparate treatment by a supervisor, the company should address it immediately. Unions tend to exploit unaddressed employee complaints about supervisors when initially forming.

10. Teamwork

Employees that feel invested in a company as part of a team are less likely to be swayed by union leaders. Holding regular meetings where management communicates with the employees about the company and allowing communication by the employees regarding suggestions for process/ production, etc. improvements can help employees feel invested in the company.

Conclusion

Whether or not the Employee Free Choice Act is enacted, use this threat to improve your culture thus improving your productivity and profit. Study after study shows that when employees feel valued and heard, they don’t look to unions to protect them from the very one who is providing them the job. Likewise, with a 92 percent unorganized private sector, unions won’t throw “good money after bad” but will target work places that are more vulnerable to union representation.

Simply said, a union cannot create a vote of no confidence in management policy unless management gives it the keys.

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A Special Needs Trust (also known as Supplemental Support Trust) is a legal mechanism that allows families to provide funds to relatives with special needs without interfering with their government benefits. The Missouri Division of Family Services (DFS) and the Social Security Administration analyze the special needs person’s assets annually to determine if he or she qualifies for government benefits, such as Medicaid and Supplemental Security Income.

If that person has more than $1,000-2,000 (depending on the program) in assets, he or she will be disqualified and will not receive the benefits. Most families need to maintain government benefits for family members with special needs, but also want to provide additional support.

For many years, families’ options were limited and the options available were not always beneficial to the needs of their loved ones. Some families elected to leave an inheritance to the special needs person in a lump sum amount that would automatically disqualify the recipient from government programs. Some families elected to disinherit the special needs person and hope that other family members would provide for any of his or her supplemental needs. These options did not fulfill the wishes of the families or supply adequate supplemental support for their loved ones.

In 1985, the Division of Family Services found that Bruce Tidrow, a mentally disabled individual, was not able to benefit from government programs because his parents had left him assets in a discretionary trust that exceeded the maximum allowed by the government programs. Mike McKitrick and Barbara Blee Maille, principals at Danna McKitrick P.C. in St. Louis, were two of the attorneys who appealed this decision to the Appellate Court of the Eastern District of Missouri.

Mike and Barbara argued that Bruce’s interest in the trust was not an “available resource.” Therefore, it was not his money because it was in a discretionary trust which allowed, but did not require the trustee to distribute funds to provide for Bruce’s “reasonable comfort” during the remainder of his life. The Court of Appeals agreed and found that the trust was intended to supplement and not replace Bruce’s government benefits; and because the trustee had complete control over the interest and the principal of the trust, the funds were not “available” to Bruce as to disqualify him for benefits.

In Tidow, the court solidified the legality of the Third-Party Grantor Special Needs Trusts in the state of Missouri. This type of trust can come into being before or after the death of the Grantor, but it cannot contain any assets of the beneficiary with special needs.

Missouri enacted a new Uniform Trust Code in 2005[3] that has a variety of implications on the Special Needs Trust. The new code states that Special Needs Trusts cannot be terminated by agreement by either the Grantor who set it up or by the special needs family member who will benefit from the trust. Special Needs Trusts are irrevocable, which means that once the trust is established (or upon the death of the Grantor), the only way that the money can be spent is determined by the trustee.

After the beneficiary’s death, the funds are then allocated as specified in the estate plan. As with any estate planning mechanism, the best option depends on each family’s unique situation.

Rules of the Legal Road

There are a number of provisions that must be drafted into the trust document in order for it to be considered a true special needs trust that will protect your loved one from losing government benefits. A trustee must be appointed to manage the trust and, upon the trustee’s approval, funds may be distributed to vendors or other third parties for the benefit of the person with special needs. The person with special needs cannot receive any of the funds directly. If this happens, the government benefit programs will consider that money as an asset and may disqualify him or her from receiving benefits.

Additionally, the trust must be drafted as either presently irrevocable or irrevocable upon the death of the Grantor, which prohibits the family member with special needs from selling or cashing in his or her interest in the trust, which will disqualify the beneficiary from government benefits. This list of required provisions is not conclusive and other specific language may be important to secure your financial commitment to your loved one.

Conclusion

In order to protect your family and their financial security in the future, it is important to talk to an attorney with expertise in estate planning for families with special needs members. Setting up a Third-Party Grantor Special Needs Trust greatly increases the chance that the person with special needs will remain eligible for government programs, and that funds not used during the beneficiary’s lifetime will be distributed to surviving family members.

If you have any questions or would like to set up or review your trust, please consult a qualified estate planning attorney when deciding how to provide for your loved ones. The attorneys at Danna McKitrick P.C. are prepared to help you plan for your family’s future.

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