This is the third article in a series, Fatal Estate Planning Mistakes, which focuses on "war stories" regarding common estate planning mistakes, as seen by a probate and trust litigator. These stories are meant to serve as lessons for the average reader. If the reader sees the mistake below in his or her estate plan, please contact Robert Sewell, Esquire, to discuss how to remedy the problem.
THE FATAL FLAW: Cindy is an elderly woman with a paid off home, $50,000.00 in a checking account, $100,000.00 in a savings account and $100,000.00 in a retirement account. She feels herself "slipping" and is no longer able to manage the daily tasks of shopping, banking, and paying bills. To aid Cindy in her daily tasks she puts her daughter, Shelly, on each account as a joint tenant. Shelly is now able to transact business from those accounts on Cindy's behalf. Cindy’s Will grants an equal share of her entire estate, including the accounts, to three children. Upon Cindy’s death, Shelly inherits all Cindy’s cash and all the children inherit an equal share of the house. In other words, one daughter takes significantly more than the remaining children despite the fact that the will grants each child an equal interest. The reason for this result is that joint tenant accounts pass to the joint tenant upon the death of one of the tenants.
THE REMEDY: Parents who wish their children to take over financial operations for them should not choose joint tenancy to aid them. Parents should give the child a power of attorney to transact the business. There are two problems with putting a child as a joint tenant on the account. First, joint tenancy causes the survivor to inherit all after the death of the remaining joint tenant. Accordingly, joint tenancy causes one child to inherit more than all the other children. If the parent wishes for all his/her children to inherit equally, joint tenancy force the opposite result. Second, joint tenancy exposes the parent to the risk that the joint accounts will be used for the creditors of that child. While there are statutes to protect against the wrongful taking of an elderly person's joint account, this frequently requires court intervention.
If you are using joint tenancy, rather than powers of attorney to aid you in your business affairs, please consult with an attorney regarding whether this is a good option for you.