Aching Joints. October 2018.
By Timothy S. Barkley, Sr.
“When my husband died, my kids wanted me to put them on the house. I haven’t done it yet – should I? My daughter lives locally, and she’s on my accounts so that if something happens to me, she can take over.”
Mrs. Selby was visiting her attorney to discuss updating her will after the death of her husband of over forty years. She was testing “conventional wisdom” against professional advice. Her four children had suggested ways to simplify management of her money during her life and transfers at death by using joint ownership.
Her attorney asserted, “I never advise joint ownership with children. The problem is the ‘owner’ part of ‘joint ownership.’ When you make your child a joint owner on your bank account or your house, you are actually making them an owner right now, not just when you die. So their creditors or divorcing spouse can try to take your assets.
“It can even get worse. I’ve had cases where the child who is joint on the accounts doesn’t give the others a fair share. I’m sure your daughter would never do that, but ‘you don’t know your family until you’ve shared an inheritance with them.’ Money brings out the worst in people.”
“Yes,” Mrs. Selby nodded, “my sister did that. My mother made her the joint owner on her bank accounts, and when our mother died, somehow the money was all gone. That made me mad – my sister and I haven’t spoken in years.
“I talked to a lawyer about it, and he explained that we could try to get a judge to order my sister to share the money with me. Something about some kind of trust.”
“That’s right,” affirmed the lawyer. “If your mother put your sister on the account so your sister could write checks for your mother, pay the funeral and all that, and then split what was left with you, she didn’t intend to make your sister an owner in her own right. Your sister was a ‘trustee’ for your mother, with specific responsibilities.
“When she kept the money, your sister violated that trust and could be held liable. The name for that is a ‘constructive trust’ – a trust ‘constructed’ by the Court to force your sister to fulfill your mother’s expectations.
“The problem with constructive trust cases is that they are very expensive, and your mother’s instructions to your sister are hard to prove, unless there’s something in writing from your mother. There usually isn’t.”
She agreed: “That’s what the lawyer told me. I didn’t have a boatload of money, and didn’t have the kind of proof he said he would need, so I just dropped the whole thing – and my sister, too.”
Her attorney grimaced. “I’m sure that’s not what your mother wanted at all, but even ‘good people’ are ‘people’ and can be tempted to do things they wouldn’t necessarily want to tell their grandmother about. And once Mom is dead, old sibling rivalries and enmities flare up, especially when there’s money involved.”
“Still, at my age, I think I need somebody to be able to take over if something happens to me.”
“There’s nothing wrong with that,” her attorney assured her, “but you have to do it the right way.
“There are three ways somebody can be ‘on your accounts’ at the bank. The first is joint ownership. We’ve already talked about the problems with that.
“The second is to name someone as your agent under power of attorney or ‘POA.’ That means they can use your money for you while you’re alive. They can’t take your money for themselves, and their creditors can’t get at your money, either.
“The third is called ‘paid on death’ or ‘POD.’ A POD beneficiary is the person who gets whatever is left in your account when you die. They don’t have any control over your account during your life; all they have is the right to get whatever you haven’t spent. So their creditors can’t make your life miserable.
“So by using a POA and POD in combination, you can get the best of both worlds, without the risks of joint ownership.”
“That makes sense,” Mrs. Selby nodded. “How about the house?”
“The problem with joint ownership is even worse with a house. If you put your kids on the deed, you can’t sell unless they agree, and when you die, their taxes will be higher when the house is sold. Neither of those seem very attractive to most of my clients.”
Mrs. Selby shook her head, concurring that these weren’t acceptable to her, either.
“You have lots of options,” advised her attorney. “Here’s one I often use.
“Most of my clients want to keep control of their house during life, but they want the kids to get the house quickly and simply at their death. Are those your goals?”
“Yes. My husband and I worked hard to pay off the mortgage and keep the house up. I mean, it’s my house now that my husband is gone, and the children don’t get it until I’m gone.”
Her attorney nodded agreement. “That’s what most of my clients feel. I suggest that we change the deed to the house so that you keep a ‘life estate’ – you can live in the house as long as you want and it’s safe, you can sell it, mortgage or reverse-mortgage it, lease it, give it away, whatever. But when you die, the house passes immediately to the kids, with no court filings, paperwork or delays. Then they can decide whether to sell it, one can buy the others out, whatever works for them at the time.
“This gives you the best of both worlds, without the headaches of joint ownership. What do you think?”
Mrs. Selby nodded. “I like both ideas. Let’s go with the new deed, and I’ll talk to the bank.”
Attorney Tim Barkley
The Tim Barkley Law Offices
One Park Avenue
P.O. Box 1136
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