In a perfect world, people wishing to distribute assets—houses, property, bank account balances and other gifts—to family members and others upon their death would find a respected estate planning attorney and neatly list these assets in a trust or will. In the end, all the beneficiaries would gather round and harmoniously accept their rightful share of the estate without contest.
But we don’t live in a perfect world. Not all wills and trusts are well crafted. Things get left out. Tempers flare. Families fight. And they turn to Trust Law Partners to help make the best of a bad situation.
In our 40 years of combined estate litigation experience we’ve found that bank accounts often tend to be overlooked during the estate planning process. Here’s why that can create problems when it comes time to execute a trust or will:
When a person opens a bank account they’re asked to name what is called a “payable-on-death” beneficiary. That’s the person whom the money belongs to when the account holder dies. While this beneficiary is normally listed at the time the bank account is created, the designation can also be changed any time prior to the death of the account holder.
Now comes the tricky part. These payable-on-death accounts are outside of any estate the account holder might have created. And that can pose problems. Unless specified in the trust or will, upon presentation of a valid death certificate the bank account balance passes directly to the beneficiary listed on the account. Based on our experience, when it comes time to distribute the deceased’s assets family members are frequently surprised to learn that such an account existed.
Despite what people may think, trusts and wills are designed to make the passing of assets a more transparent, straightforward and legally enforceable process, not a more complex one. For this reason most estate planning attorneys—including Trust Law Partners—strongly advise their clients to change their bank accounts to reflect that they have a family trust, or an estate, if they choose to have the bank accounts follow those distribution plans. That entails changing the bank account to list the trust or will, not an individual, as the beneficiary.
Here at Trust Law Partners, we find that bank accounts not listed in an estate plan often create problems when the deceased wishes are contested. Beneficiaries may insist they’ve been wronged because the beneficiary designation on a bank account is inconsistent with terms of the will or trust.
But issues with bank accounts don’t stop there. Joint bank accounts, where both account holders equally own the money, can pose further problems. Funds in these accounts are often shared between married couples or children and elderly parents, and automatically pass to the surviving joint account holder(s) upon the death of the other(s). Like individual bank accounts, joint accounts also pass outside the estate plan. However, the fact that there are multiple beneficiaries only complicates the family dynamics often at play when it comes time to distribute the deceased assets.
Here’s another unfortunate aspect of joint bank accounts. These collective funds are subject to the debts of both account holders. For example, say Tom and Sally get married and deposit $10 thousand in a joint bank account. Over the years, Tom racks up $9 thousand in gambling debts and winds up having a legal judgment against him. Imagine Sally’s shock when she discovers that the debt holder is entitled to take that nine grand out of their joint account—that she will essentially be paying 50% of Tom’s debt.
So, altogether, we would offer a few cautionary notes when it comes to bank accounts and how they impact estate planning. Number one, don’t be surprised if you discover that a deceased family member has left a bank account out of a will or trust. Second, turn to Trust Law Partners to explore your options if you think that money should have come to you. And, third, if you’re opening up a joint bank account think carefully before you name a beneficiary.