Joint Accounts: Proceed with Caution
A recent situation with a client prompted me to rewrite this article that I had written a few years ago. Joint accounts between spouses is not the topic of this article.
An individual passed away with no spouse and no children and no Will; the beneficiaries of the estate are two siblings. One of the accounts was joint with one of the siblings (there are other assets left to the estate). Although the intention was not documented, it appears the money was intended to be left to this sibling and his/her family because of the close relationship for many years.
The bank told my client that since the account was joint with right of survivorship, he/she can change the account into his/her name only. Unfortunately, the other sibling disagrees.
And the lawyer bills start running up. And the heartache starts.
Compounding the issue is the lack of Will. My client applied to become the administrator of the estate, but the other sibling is resisting. So now it’s more than 16 months since the death of the individual and still no legal representative has been appointed. I have assisted in filing the tax returns (two) since the individual’s passing; but with no legal representative, it’s difficult to get the estate wound up.
I discuss joint accounts most often with my senior clients; and it’s normally when they have become widowed and want to make all of their accounts joint with one of their children. There are many reasons for wanting to have an account joint with an adult child or another person.
The usual reason is for convenience. If the parent or original owner becomes ill or unable to do normal banking they want their child or another person to be able to do so for them. Often this works just fine; and the child does manage the account just like the parent would.
Remember that Joint with Right of Survivorship means both parties have 100% ownership of the account or asset. Yes, the child or other person has the right to access all of the money.
And these assets may be targeted by the child’s (or joint holder’s) ex-spouse or creditors.
There is another way an individual can have the same convenience without making the account joint. A bank’s power of attorney form can be completed at your bank and the individual you name as your attorney will be able to complete almost all banking transactions that you could do without it needing to be joint.
During my 16 years working at a major bank I assisted many clients in completing these forms and the accounts operated well.
The Power of Attorney has a duty to use the money in the best interest of the account owner. If the account is not operated properly (he/she takes all your money) you can sue your child!
You have no legal rights to sue if you made it joint!
If you have assets at more than one bank or they are substantial, you may want to have a formal Power of Attorney form drawn up by a lawyer. Banks must honour these forms (may take extra time as they refer the document to their legal counsel, but it will be put in place).
When the individual passes away, the power of attorney stops and the named individual no longer has access to the account. The account is frozen until the estate is finalized or the funds are transferred to an estate account. Most banks do allow some bills to be paid from this frozen account. When dealing with deceased clients’ accounts, at the bank we often paid utility bills, property taxes, and funeral bills with funds in the account so the family was not “stuck with the bills until the estate was finalized”.
If the account with one financial institution is small, the bank may authorize the release to the beneficiary by having a declaration signed. The bank may not require the Will be “probated”. (Probated means the courts acknowledge the legal Will and all parties know the Will is legal and the one to be used.)
If the account had been made joint instead of a power of attorney, the survivor can request the account be changed to his/her name only and those funds are not frozen. As a bank the joint account is treated exactly as it is: “joint ownership with rights of survivorship”, meaning the survivor(s) of the account have the right to the money.
So what are the problems with joint accounts?
The main problem is what is the intention of the joint account? As a parent or account holder did you intend to leave that account to the child or joint owner after your passing? Or was it intended for convenience only and those funds now become part of the estate to be shared with all of your beneficiaries?
Many family disputes have occurred because the parent (or original owner) did not write down the intention of the account. One child may say “Mom wanted me to have that money for helping her all these years.” And yet the other children may say “that’s not what Mom wanted”. And the lawyer bills start adding up.
If you insist on having a joint account (with someone other than your spouse), you need to put in writing your intention of the joint account: “I have created a joint account (list the account number and financial institution) with my child, Sally, for convenience purposes only, to assist with my banking when I cannot do so. Once I pass away, these funds are to be part of my entire estate and distributed according to my Will.”
Or: “I have created a joint account with my child, Sally, with the intention that she receive these funds as a gift once I pass away. These funds are not intended to be part of my estate.”
Or: “I have created a joint account with my children, Sally and Sam, with the intention these monies be available easily and used to pay for my funeral and other estate costs. If not entirely used, it should be included in my estate and distributed according to my Will.”
These handwritten documents are not part of your Will, they are a separate document to be kept in a safe place and yet accessible by your executor(s). Keep your original in a safe place at your home or safe deposit box and make copies to give your child (or the joint account holder) and the executor(s), and your other children or beneficiaries so everyone knows your intentions. Keep a copy or the original with your Will. You should also give a copy to your bank.
Although these handwritten documents are not legally binding, they may avoid a lot of headaches (family feuds) and costs (lawyers can help sort it out for a fee of course and it could take years).
Another problem with joint accounts is actual theft by the joint owner. And if the child joint holder has marital problems – will the spouse have a right to some of this money?
What if your joint owner has money problems – because they are a 100% owner, the creditors may come after this money!
If a client insists on having an account joint with a child, I recommend just one chequing account with not too much money in it (not all of your savings). Yes it may cost your estate more in probate fees and lawyer fees when you pass on, but the risks of putting everything in joint names may cost much more than the fees after your death. And the heartache you may put some of your beneficiaries through is not worth it!
If you have questions about joint accounts or other estate planning situations, please give me a call. Better to be prepared for any situation. I have seen families in dispute (and not talking to each other) over very small amounts so the size of the estate doesn’t matter.
Anni Markmann is a Certified Financial Planner, a Certified Professional Consultant on Aging and Tax Expert living, working, and volunteering in our community. Contact her at 422-6631, firstname.lastname@example.org or 36 Dawson Road in Ste Anne.