Bernard J. Toussaint
Bernard J. Toussaint is an attorney in Oak Brook whose practice concentrates on estate planning, business law and commercial real estate transactions. With Bernie’s kind permission, we share here his insights on the hazards of naming family members or other close associates as joint owners on bank accounts and other assets.
Naming family members or close friends as joint owners of your accounts may seem like a convenient way to let them help you pay bills and manage those accounts. But many times that convenience comes at a cost. This article highlights some of risks. Read on for more information on this all-too-common mistake.
I see this all the time. A client comes in to discuss her estate plan. As we get to the part where I ask questions about her assets, she informs me that she has “added” her son to her bank accounts so he can sign checks and help pay bills. That is almost always a bad idea for many reasons including:
- Money in the joint account will be subject to the claims of creditors of both owners. So if mom funds the account with her money and her son/joint account owner has creditor issues (think lawsuits, divorce, bankruptcy), his creditors may well be able to gain access to the money in that account.
- If son is a joint owner, nothing prevents him from withdrawing funds for his own use.
- Adding someone as a joint owner to an account you have fully funded probably results in a gift of half the value of the account. Depending on the amount of money involved, this may require the filing of a gift tax return and maybe payment of a gift tax!
- Mom might not intend that her son inherit the money in that account when she dies, but if he is a joint owner, the money will be his. That essentially is what happened in a recent Illinois case, Konfrst v. Stehlik.
In Konfrst, Aunt Beverly opened a money market account in her name and in the name of her niece, Cynthia. Aunt Beverly contributed all the funds to that account. Cynthia used funds from that account to pay some of Aunt Beverly’s bills. Aunt Beverly passed away and the very next day, Cynthia withdrew the balance of the account: $255,236!
Frank was Aunt Beverly’s brother. He was also the executor of her estate. He brought a claim against Cynthia to recover all the money she had withdrawn from the money market account. He argued that when Aunt Beverly opened the account, she added Cynthia’s name for convenience only and did not intend for Cynthia to receive the money when Aunt Beverly died. He asked the court to order Cynthia to return the funds to Aunt Beverly’s estate.
Not surprisingly, Cynthia claimed that as surviving joint tenant, she was entitled to keep the money. The court agreed with Cynthia. Evidence produced at trial supported Cynthia’s claim that she was, in fact, a joint tenant on the account and not just a “convenience” party. As the surviving joint tenant, the balance in the account when Aunt Beverly died belonged to Cynthia.
We will never know exactly what Aunt Beverly intended when she opened the account. The point is why create a question in the first place? Much better to title the account in the name of a living trust, appoint someone you trust as trustee, and provide for disposition of the account in your trust document. If Aunt Beverly had done that, she could have been assured that the money would go to her intended beneficiary and there likely would have been no costly litigation over the issue.
By the way, if Cynthia had filed for bankruptcy while Aunt Beverly was still alive, it’s a good bet that the bankruptcy trustee would have claimed at least half the account as an asset of the bankruptcy estate. No doubt Aunt Beverly did not intend that!
Takeaway: Avoid the risks involved in adding joint owners to your bank and investment accounts and other property. Use a trust to accomplish your goals instead.
© Bernard J. Toussaint