Estate Planning with Bank Accounts – The Importance of Expressing Clear Intent

An advantage of being both a trust litigator and an estate planner is seeing where things go wrong with wills, trusts, durable powers of attorney, and advanced health care directives. As issues arise in the cases we litigate, the experience informs the estate planning process. A frequent litigation issue arises from elders’ banking decisions. Here's a story to illustrate that point…

Dudley and Nell had three children: Rocky, Bullwinkle, Natasha. Dudley and Nell were always very fond of their children and it was always their intent that their estate be divided equally between them. Dudley and Nell created a trust with the help of their attorney, Mr. Peachfuzz years ago while Dudley was working, but failed to follow Peachfuzz’s sound advice that they also create a durable power of attorney and that they should revisit their plan every three years. Dudley and Nell also left their checking and savings accounts out of the trust as they contained only a small amount of money.

Dudley is a retired law enforcement officer. He receives income from a pension and investments every month but doesn’t spend nearly as much on his regular bills as he receives. As a result, he has accumulated several hundred thousand dollars in his checking and savings accounts. Nell took care of paying bills and the couple’s finances while she was alive, but sadly she has passed away due to an unfortunate incident with a train.

After Nell’s death, Natasha moved in to help Dudley manage finances and help around the house. Natasha and Dudley went to the bank and added Natasha’s name to all of Dudley’s accounts so that Natasha could write checks for him. Dudley’s banker, Boris, didn’t advise Dudley that doing so meant making Natasha a co-owner of the money in the account with the right of survivorship. He also didn’t mention that Dudley’s goal of having Natasha’s help could be achieved with a power of attorney, or of any other alternatives.

The following year, Dudley fell from his trusty mount for the last time. Thereafter, Rocky, as successor trustee began to administer Dudley’s trust estate. He contacted Natasha to see about the money that was in Dudley’s bank accounts. Natasha claimed he had no right to see statements or to the money. She explained that Dudley clearly intended that she have it or he wouldn’t have put her on the title.

If this story sounds familiar, its because either you watched a lot of cartoons as a child, or because you or someone you know has faced this same scenario. The good news is, there are preventative solutions available. Using the story from above, the following could help you prevent problems before they begin.

Trust bank accounts: Dudley might have created trust bank accounts and appointed a co-trustee to help manage his assets, including his bank accounts. Rightful title to Dudley’s accounts would then have remained clear. They could also then have been easily administered by Rocky along with all other trust property. Rocky would have no need to petition the probate court to have the accounts confirmed as trust assets, and also the potential need for a full probate proceeding. Dudley would avoid potential gift tax issues raised by adding Natasha to his bank accounts.

Durable Power of Attorney: Dudley could have created a durable power of attorney. Under a power of attorney, the designated agent, Natasha (called the “attorney-in-fact” or “fiduciary”) could legally sign documents on Dudley’s behalf, but title to bank accounts would have remained with Dudley. All of Natasha’s actions could be scrutinized through the lens of Natasha’s fiduciary duty toward Dudley. In the larger estate planning scheme, the pay-on-death transfer may have been preferable to trust administration of the bank accounts, but wouldn’t have been undermined by putting Natasha on the title.

Should Natasha nevertheless still decide to abscond with the money, their cases would at least be simpler. There would be no need to prove Dudley’s intent, thus no need to argue over who’s properly entitled to the bank accounts.

There is no bulletproof plan for protecting against elder financial abuse. However, sound estate planning by a licensed attorney can make it more difficult for these fraudsters to get away with it, and makes it easier for loved ones to understand the deceased’s intentions.

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