Simple mistakes in how bank accounts are titled can lead to big and costly problems. As the population ages, it is not uncommon for an elderly parent to include a son or daughter on his or her bank account.
The typical reasons for including a child on the account are to help facilitate the payment of expenses and for the child to help monitor the outflow of monies made by the parent.
However, many parents do not realize the potential pitfalls of jointly titling accounts which can result in costly family disputes that can drive an irreparable wedge between family members at the time of death when they should be coming together.
The law in New Jersey provides there is a presumption that jointly titled accounts become the property of the survivor upon the death of the first owner.
Therefore, if a parent includes his or her child as a joint account holder, upon his or her death the account transfers automatically to the child named on the account.
When the child named on the account is the only surviving relative, this usually does not pose a problem. However, when there are other heirs, a dispute is likely to arise if the other heirs feel they are entitled to a portion of the funds in the account.
The issue is costly because the heirs could become involved in litigation in order to ascertain the decedent’s intent, the dispute being whether the decedent intended the account to pass to the surviving account holder or if the surviving account holder was added only for the purpose of convenience.
Although there is a presumption the account passes to the survivor, a Will may contradict the presumption if it provides for equal distributions among heirs; thus, resulting in controversy.
There are ways to avoid potential issues, depending on your intent. In the past it was recommended that you include a provision in your Will that such joint accounts are for convenience purposes.
This method is not sufficient as it is only available to rebut the presumption, but does not avoid the issue of firmly establishing your intent for the joint account.
The better option, if you intend to only give another the ability to help pay expenses and monitor distributions is a Durable Power of Attorney. The Durable Power of Attorney would enable the person you appoint to act as necessary with regard to the bank account and said account would pass pursuant to the terms of your Will.
If your intent is for the account to pass to the survivor named on the account, then you may name the intended beneficiary as a payable on death (otherwise known as “POD”) beneficiary. If the account is payable on death, it would pass to the intended survivor and avoid the probate process. However, because there can be no confusion regarding your intent, you do not have the same issues as joint accounts. If you wish to give the payable on death beneficiary the ability to assist in paying bills, a Durable Power of Attorney would provide such power.
Do not underestimate the importance of ensuring bank accounts are titled appropriately. A simple mistake resulting from inaccurate advice can cause family problems after your death, without you there to help resolve them. This may all be avoided with careful estate planning and attention to proper titling of bank accounts.
Benjamin T. Branche, Esq. is an attorney at the law firm of Szaferman, Lakind, Blumstein & Blader, P.C., 101 Grovers Mill Road, Lawrenceville, NJ, 08648. He concentrates in tax, trusts and estates, and business law. He can be reached at bbranche@szaferman.com or by phone at 609-275-0400.
