Oregon fiduciaries--conservators and executors, and even agents under a power of attorney--often have stocks that must be sold to pay the needs of a protected person or to close an estate. When trying to sell or transfer stock the fiduciary will be faced with having to get a Medallion stamp on the form that requests the stock transfer. This post is my attempt to explain what is going on with stock transfers and Medallion Guarantees.
Let's assume that the protected person or decedent owned stock in Big Farma, Inc. Big Farma is too busy with its big farms to keep track of the millions of people who hold its stock so it has hired a transfer agent to keep track of them. The transfer agent issues and cancels stock certificates to reflect changes in ownership. The transfer agent may also pay out dividends, handle lost certificates, and do other things related to helping stockholders maintain their accounts. Most transfer agents are also banks, brokerages, or trust companies.
Transfer agents are are allowed to (and generally do) demand a guarantee that a person requesting a change of ownership has the authority to do so. Signature guarantees are covered by the Uniform Commercial Code. (UCC 8-306 if you want to read it) When a bank for other financial institution guarantees a signature on an instruction to transfer stock the bank making the guarantee is guaranteeing that (1) the signature is genuine; (2) the person making the signature has the authority to issue the instruction; and (3) the person has capacity to sign. If the bank making the guarantee is wrong about one of these things, and the transfer agent suffers a loss because of it, the bank that made the guarantee is liable for the loss.
(A notary, on the other hand, certifies only that the signer signed the document voluntarily, signed the document in the presence of the notary and provided proof of identity. There is no agreement to pay damages to anyone who relies on the notary stamp.)
Banks guarantee signatures to the satisfaction of transfer agents by associating with the Securities Transfer Agents Medallion Program, Inc., (STAMP, Inc) a not-for-profit corporation. STAMP, Inc. uses a company called Kenmark Financial Services to administer the Medallion Guarantee program. The bank or brokerage house that wants to issue Medallion Guarantees must meet certain financial standards and purchase a bond to cover liability for any mistakes. The amount of the bond determines the liability limit of the bank, and banks will not guarantee a signature if the transaction has a value that exceeds the amount of its bond.
Once the bank has qualified to make Medallion Guarantees it can offer the guarantees as a service to its customers. It is not required to provide the service and you cannot force a bank to do so. Therefore, the first step for an Oregon conservator or personal representative in search of a Medallion Guarantee is to find a friendly banker. Most banks limit the service to their customers.
Of the three things that a Medallion Guarantee guarantees, the first two are easy. The bank must guarantee that the signature is not a forgery. Personally appearing with good identification usually covers this hurdle. The second it that the signer has the capacity to sign. This means that the signer is over eighteen years of age and is not obviously crazy or demented. This, again, is seldom difficult.
The third element of the guarantee is that the signer is the appropriate person to sign the transfer instruction. When the signer is a fiduciary--a conservator, personal representative, or an agent pursuant to a power of attorney--the signer must prove his or her authority to engage in the proposed transaction.
For a personal representative or conservator, proof of authority is normally in the form of certified copies of the letters testamentary or letters of conservatorship. Many banks will require that the letters be less than sixty days old. If the conservator has old letters, she might consider getting a new set prior to approaching the bank. If the person seeking the Medallion Guarantee is the personal representative of an estate the bank will also want to see a certified copy of the death certificate. Every bank has its own internal procedures and requirements. You can read sample procedures promulgated by the American Banking Association here.
The tricky case is where the fiduciary seeking a Medallion Guarantee is an agent under a power of attorney. The banker is required to read and interpret the power of attorney to determine if the power of attorney permits the transaction that the agent wants to complete. Thus, if the agent wanted to transfer the stock to himself, the banker might search the power of attorney for the power to make gifts. In this situation, obtaining of a Medallion Guarantee depends on the ability of a retail banker to interpret a power of attorney. This sort of interpretation is difficult enough for experienced elder law lawyers. Your results in a bank are guaranteed to vary.
Transfer agents are form-driven bureaucracies and the forms are not always the easiest to understand.. When you, as a fiduciary, need to make stock transfers, get the forms from the transfer agent. Make sure that the forms show the value of the transaction (so the Medallion stamp holder knows whether it is within his or her authorization). Then cross your fingers and go to the bank for the for a Medallion Guarantee
Computershare is one of the big transfer agents in the U.S. It's forms are as confusing as any and it is not unusual to get odd decisions out of them. Recently I submitted a transfer request--with a Medallion stamp--and Computershare responded with a statement that the company believed my client to be dead. Proving through documentary evidence that someone is alive is fairly difficult. I invented a "life certificate" to do this, but I suspect Computershare came around when I pointed out that the Medallion stamp guarantees capacity. One of the elements of capacity is life. Computershare bought the argument and allowed the transfer. In most cases, getting the Medallion Stamp is only an annoying hassle. In that case, the Medallion Guarantee actually helped the fiduciary.