When it comes to granting access to an account, there are multiple options that carry various risks and benefits during the account owner’s life and will have drastically different results at the owner’s death. Choosing an option without understanding these differences can not only cause the assets to be lost but can also lead to a legal battle between your loved ones. The case of Rose McManus and her family demonstrates some of the issues that can arise when the wrong decision is made.1
Rose and Elizabeth’s Joint Account
Rose and her daughter, Elizabeth Cullen, opened a joint bank account that was funded entirely by Rose. The goal was to make it easier for Elizabeth to help care for her mother. Although the account was titled as “joint,” the phrase “right of survivorship” was not included on any of the account documents.2
Rose’s estate plan consisted of a Pourover Will and a joint Revocable Living Trust with her late husband. Elizabeth was named successor trustee of the trust. The trust stated that following Rose’s death, the balance of the trust estate was to be divided into equal shares and distributed to Rose’s then living children—Elizabeth and her three siblings.3
According to court records, Elizabeth administered the trust assets to the satisfaction of her siblings but failed to include the joint account in such assets. Instead, she continued to own the joint account in her own name. The siblings argued that the joint account should have passed by Rose’s will and been included in the trust estate and thus, divided equally amongst the four siblings.
In order to resolve the dispute, the Rhode Island Supreme Court relied on the documents that were presented and signed by Rose and Elizabeth when the account was opened rather than accepting Elizabeth’s account of what was verbally communicated to them by the bank. The court determined that because the documents did not specifically designate survivorship rights on the signature card or on any other signed document, no survivorship right was included on the account. Therefore, the account assets should have been included in Rose’s trust estate and divided equally amongst the siblings.
Planning Options
The McManus case demonstrates how improper planning can lead to unclear intentions, unintended transfers and unnecessary family conflicts. We cannot know what Rose intended to happen with the joint account assets, but all of her various options and their consequences during life and death should have been explained to her so that she could make the proper decision.
If it was Rose’s intention to allow Elizabeth to make deposits and withdrawals to the account and receive any remaining account assets at Rose’s death, then a joint account with right of survivorship was an acceptable solution. However, it was important for her to understand that the joint account assets could be withdrawn and used by Elizabeth at any time, would be exposed to Elizabeth’s debts and liabilities and that by naming Elizabeth a joint account owner, Rose was making a taxable gift to Elizabeth.4
On the other hand, if it was Rose’s intention that Elizabeth be able to use the account assets only for Rose’s benefit in case Rose is ever incapacitated, then a Property Power of Attorney would have been a far more effective solution. A Property Power of Attorney can either be effective (a) immediately or (b) in the event of the principal’s incapacity and grants the agent significant authority to access and use the assets for the principal’s benefit only. While the potential for abuse always exists, this legal document provides a remedy to the principal or beneficiaries of the estate if abuse does occur.
Some states, including Illinois, also allow for a third option—a “convenience account”—which allows a bank account owner to designate a “convenience depositor” who can access the account and make deposits to and withdrawals from the account. The Illinois law specifically provides that deposits to the account (a) do not affect the title to the money deposited into the account and (b) will not be considered gifts made to the convenience depositor.5 Therefore, deposits—whether made by account owner or the convenience depositor—and any interest thereon, will be the property of the original account owner.
Conclusion
Understanding how your assets will be transferred at your death—whether by will, trust, joint ownership or beneficiary designation—is an important part of your estate planning. Your attorney should discuss this aspect of your estate planning with you and answer any questions you have regarding specific assets so that your wishes are accurately reflected in your documents and your estate is administered accordingly without conflict.
1. Trust of Rose P. McManus, Elizabeth Cullen, Trustee v. Albert McManus et al., No. 09-191 (May 10, 2011).
2. “Right of survivorship” is a legal attribute which indicates that when one owner dies, the surviving owner will automatically absorb the dying owner’s share of the account or property. For example, if Andrew and Betty jointly own an account with a right of survivorship, then upon Betty’s death, Andrew becomes the sole owner of the account, despite any contrary intent in Betty’s will or trust.
3. It is unclear whether the distribution of the residue was to be per capita or per stirpes. While a per capita distribution to Rose’s children would mean that only her then living children would receive a share, a per stirpes distribution to Rose’s descendants would mean that the share of a predeceased child would pass to his or her descendants. Again, proper understanding and drafting of the trust is the difference between accurately reflecting the individual’s wishes and creating conflict amongst family members.
4. For a detailed explanation of additional issues to be considered regarding joint accounts, please see the March 2012 Newsletter, Issues to Be Considered Regarding Joint Accounts.
5. Illinois Banking Convenience Account for Depositors Act, 205 ILCS 720.