Your bank account presents numerous opportunities and problems for estate planners. In this article, I briefly discuss some of what might happen to your bank account in a number of circumstances after you pass away.
1) Joint Ownership of Bank Account
If the bank account is jointly held, the co-owner of the account becomes the sole owner of the account. It is tempting to say that at that point the co-owner becomes entitled to all the money in the account, but that is incorrect. Co-owners of jointly owned bank accounts are ALWAYS entitled to the full value of the account.
For example, suppose an elderly parent asks her son to take care of her and makes him a joint owner of the bank account. If he withdrew every penny of the account and fled to Mexico, the mother would have no legal recourse against her son.
For this reason, disabled or elderly people in the position I just described should, instead of giving their caretaker ownership of their account, give their caretaker power of attorney over their account. A person given power of attorney over another person’s property is imputed a variety of legal duties, not least of which being the duty to act in the best interests of the owner of the property.
It is also important to know that when the joint bank account holder has a right of survivorship (as is the case in virtually all standard bank accounts), the provisions in your will have no effect on the disposition of your will when you die.
If the bank account owner had designated a Payable On Death beneficiary (P.O.D.), that designated beneficiary could present a death certificate to the bank, fill out the necessary paperwork, and walk out of the bank with a check for the amount of money in the bank account.
Unlike in the previous example, the P.O.D. beneficiary would have no access to the account during the lifetime. Keep in mind, the P.O.D. beneficiary can be a trustee of a trust fund for the benefit of your minor children or other loved ones. This can be an invaluable estate-planning scheme, and I advise many of my clients this way. Also keep in mind that some states refer to P.O.D. beneficiaries at “T.O.D.” (Transfer On Death) beneficiaries.
3) Individual Ownership of Bank Account
If the bank account is individually owned and there is no P.O.D. beneficiary, the property will usually become part of the decedent’s probate estate. Someone—usually a family member or other loved one—would need to file a petition in one of Arkansas’s circuit courts or probate courts. The petition would ask the court to open up an estate and appoint someone (usually the filer) to be the personal representative of the estate. Once a judge grants the petition, the bank account becomes the property of the estate. The personal representative is then tasked to, in accordance with the law, pay out of the estate’s assets all properly made claims of creditors against the estate.
Once all these tasks are done, the personal representative distributes what remains of the estate—including the contents of the bank account—to the individuals named in the decedent’s will. If the decedent did not make a will, the personal representative would distribute what remains of the estate in accordance with the law of intestacy.
As you can see, the disposition of your bank accounts after your death requires serious thought. For more information on this topic, and any other estate-planning topic, call Chris McNeal at 501-372-1300.