The Estate Planner’s Storybook of Everyday Tales and Unexpected Endings

Mrs. Mildred Brown had been banking with First County Savings Bank and its predecessors for over thirty years.  Fearful of the stock market, Mrs. Brown kept the vast majority of her assets in savings accounts at the bank.  The teller at the local branch knew Mrs. Brown and her daughter, Cindy, well and as Mrs. Brown advanced in age, the teller made a seemingly innocuous suggestion.

“Mrs. Brown,” the teller said one morning.  “You might want to consider adding your daughter’s name to your bank accounts so that she can pay your bills and manage your accounts for you if you don’t feel up to it.”

Mrs. Brown was feeling more tired than usual these days and the prospect of balancing her checkbook was becoming more and more daunting.  She feared missing a credit card payment and incurring penalties.  The teller’s suggestion of adding Cindy to her accounts was a perfect idea, a welcome relief.  The next day Mrs. Brown asked Cindy to accompany her to the bank and they added Cindy’s name as a co-owner of the account.

As her health continued to decline, Mrs. Brown began worrying about where her assets would go upon her death.  She had three wonderful children, Cindy, John and Delia.  Lucky for Mrs. Brown, Cindy lived close by and Mrs. Brown depended on her for help with grocery shopping, doctors’ visits and banking.  John and Delia were equally devoted and called her everyday but both of them lived out of town and were busy with their own families and careers.

Mrs. Brown had made a will years ago after her husband died but she thought it prudent to contact her lawyer, Ralph Barnes, an old family friend, to see if her will needed to be updated.

“Mildred,” Ralph assured her over the phone.  “I reviewed your estate planning documents, and just as you thought, your will leaves everything equally to your three children.”  Confident that her affairs were in order, Mrs. Brown focused her energy on her children and grandchildren.  Though separated by several thousand miles, her children had always gotten along well and kept in close tough with one another.

When Mrs. Brown died at the age of 91, it came as a shock to Cindy whose days had been structured by her mother’s various needs and appointments.  She had been able to focus wholly on her mother’s care because her husband, Bob, supported her and managed the couple’s finances.  Bob was a serial entrepreneur and though none of his businesses ever took off, he managed to make a comfortable living.

Bob was secretly relieved at his mother-in-law’s passing.  Now Cindy would have more time to spend with him.  Better yet, he was counting on a substantial inheritance from Mrs. Brown as he had been funding his latest venture on his personal credit card and the bills were mounting.  Mrs. Brown’s bank statements had been coming to their address these past few years and Bob took notice of the fact that his wife’s name was listed on the account.

When Cindy alerted Ralph Barnes of her mother’s passing, he informed her that she was named personal representative of her mother’s estate and therefore in charge of gathering her mother’s assets and distributing them, through the probate process, to the beneficiaries named under the will.  Ralph encouraged Cindy to meet with him so that he could assist her with this process.

In preparation for the meeting, Ralph asked Cindy to make a list of Mrs. Brown’s assets.  This was not a difficult task because, aside from some costume jewelry and the few pieces of antique furniture that she could fit in her room at the assisted living facility, all of Mrs. Brown’s assets were in accounts at First County Savings Bank.  As Cindy and Ralph were completing the probate paperwork together at his office, Ralph asked Cindy for a copy of the First County Savings Bank statements so that he could include the account numbers on the paperwork.  When Cindy pulled a recent statement from her purse, Ralph was quite surprised to see Cindy’s name next to her mother’s on the account title.

“Well, Cindy,” Ralph stated,  “it looks like this is going to be a small probate estate because the bulk of the assets are already owned by you.”  Cindy looked confused.

“The only assets that pass pursuant to your mother’s will are those owned solely in her name at the time of her death.  Because the bank accounts were owned jointly with you, they passed to you by title automatically at your mother’s death.”

“Do you mean John and Delia don’t get anything other than a few sticks of furniture?  Mom thought everything would be divided equally among my siblings and me.  This is not at all what she would have wanted.”

Remembering Mrs. Brown’s phone call regarding the terms of her will several years ago, Ralph started to get nervous.  “Cindy, don’t worry.  Even though the bank accounts are legally yours, you can write checks to each of your siblings for their share.  This could require you to file a gift tax return and use up some of the amount you can pass free of tax at death, but it’s doable.”

Relieved that the situation could be ameliorated, Cindy went home.  Over dinner she informed Bob of the joint bank account situation and her intention to write a check for 1/3 of the value of the accounts to each of her siblings first thing in the morning.  Normally calm and slow to speak up, Bob surprised Cindy with the alacrity of his response: “No, that’s not at all a good idea.”

“What do you mean?” Cindy asked, in deference to Bob’s experience in financial matters.  “Am I doing something wrong?” This hadn’t been the way Bob had envisioned breaking the news to Cindy of their financial straits but the prospect of losing this windfall frightened him into action.  “Cindy, we’re in trouble.  A few big deals I was counting on fell through.  It’s impossible to get business loans these days and we have maxed out the equity in our house.  I have been purchasing business equipment on my personal credit card and taking cash advances on the card to pay rent and salaries.  The interest alone is killing me.”

Cindy was silent.

“These joint bank accounts from your Mom are a godsend.  We can get back on our feet again.” “But what about John and Delia?  Mom wanted them to be treated equally, and they have kids to put through school.”

“Cindy, you took care of your mother for years.  Don’t you think you deserve a little extra as compensation?  John has a federal government job and Delia is a doctor.  They’ll be fine.  They don’t need this money like we do.”

Cindy was not used to challenging Bob on financial matters and the fact that they were deep in debt was chilling.  She was suddenly furious that her mother put her in this position, even though it was an innocent mistake.  “Why didn’t the bank teller explain the consequences of adding my name to the accounts,” she wondered.  “Why didn’t Mom’s lawyer know anything about this?”

Overwhelmed and more fearful of disappointing her husband across the table than her siblings across the country, Cindy acquiesced.  “Well,” she said.  “I suppose we could give John and Delia their shares in a few months once we get our finances in order.”

The Moral of the Story: Titles trump wills! 

Do not add someone’s name to your bank account as a co-owner as this could significantly disrupt your estate plan and unintentionally disinherit children or other family members.  Instead, ask at the bank if you can add someone to the account “for convenience purposes” only, rather than as a co-owner.  Banks have the ability to do this, although some tellers may not be aware of this option.   Alteratively, sign a power of attorney allowing someone to manage your finances for you.  Be wary of relying on the generous nature of your devoted child.  Accounts titled jointly with one child are often not shared with siblings due to gift tax exemption limitations or pressures from third parties like spouses and creditors.  Having a will with the proper terms is not sufficient.  You need to inform your estate planning attorney (and hopefully he or she will ask you first) how each and every asset you own is titled.  Remember, that assets pass by title before they pass by will.

For more information on how the Law Office of Jane Frankel Sims LLC can help you transfer wealth to the next generation effectively and tax efficiently call our office for a consultation today at:410.828.777

Disclaimer:

The names of individuals and businesses in this excerpt are completely fictitious, and the stories, while legally plausible, are invented.  Any resemblance to actual events is purely coincidental.