Imagine yourself entering your local financial institution to transact business for your mother or father, as his or her power of attorney. The representative recommends that you become a joint owner with your parent on his or her account with right of survivorship. The representative explains the benefit of this recommendation – to ensure flexibility to access funds to pay obligations of your parent after they die. What is wrong with this recommendation?
What if I die, and my daughter is a joint owner of my financial account with right of survivorship? Upon my death, that account is now owned by my daughter solely. However, I have two children. Is my daughter obligated to share those funds with my son, her brother, if my Will states, “[A]ll of my assets shall be distributed to my children in equal shares?” Not if the account was meant to be a jointly held account. However, is this account a convenience account (meaning a party is added only as a “convenience” and not intended to own the account balance at the death of the principal)? Is it a constructive trust account (holding the funds for the benefit of others)? Was it meant to be a joint account even if I did not direct her to be added, but the banker did? How will my son view this? Transfer-on-death (“TOD”) accounts trump all testamentary provisions in a Will, if the account was meant to be a joint account. But therein is the issue, was it meant to be a joint account?
Now my daughter wants to fix the problem. What if she shares the funds with her brother? Is this a gift from my daughter to my son? What was the value of the joint account? Was the account value more than the annual exclusion ($14,000 presently)? Is my daughter required to file a gift tax return because she shared the funds with her brother? What if my daughter requires skilled nursing within five years? Does that gift to her brother now create a gift for Medicaid purposes whereby imposing a penalty to her if she requires skilled nursing care within five years?
The answers to these questions depend on facts and circumstances. It is important to understand the complications that arise from selecting a TOD account. Think twice before you change ownership of a bank account, as the change may completely alter the estate plan. I highly recommend you contact your estate planning attorney before altering any titled ownership or make any changes to beneficiary designations on financial accounts.