THE BEST MADE PLANS …

“My mother recently passed away, and my sister says she is keeping all of the money that my mother had at the bank,” says the man on the other side of my desk. “Can she do this? Is there anything that I can do to stop her?”

These are questions that are posed every day of the week to some lawyer in New Jersey. Elderly parents will often add one child’s name to a bank account, thinking that the child will then be able to gain access to the account to pay the parent’s bills.

Parents are unique individuals. They’re very concerned about not being a bother to their family. The want to make things as simple as possible for their children, both in life and in death.

A parent will often think that by adding a child’s name to a bank account, they are making things easy for the family. Quite often, I will ask a client why they added a child’s name to a bank account and the reply is invariably, “I wanted her to be able to get at the money in case I needed it. I also thought that when I died she’d be able to just go get the money without probate.”

Well, all of that is true. A joint account holder does have the ability to access the account on which he/she is named. So, aren’t joint bank accounts a good idea? Why bother with lawyers and powers of attorney for the mother? Why bother with a Will if the child could gain access to the account after the mother’s death without the need for probate? Are powers of attorney and Wills relics of the past?

The short answer is, no. Owning assets jointly with one child could cause many, many problems that have the potential of costing you or your estate a lot of money.

At the top of this article, I began a scenario where a sister’s name was added to a bank account and the brother now wants to know his rights. Assume that the mother had a Will in which she left her estate equally to her children, the brother and sister. Further assume that the mother lived with the sister at the time the sister’s name was added to the mother’s account and that the money in the bank account constitutes 50% of the mother’s estate, which is worth $100,000.

According to a New Jersey statute, a joint bank account belongs to the survivor. In other words, the account would belong to the sister after the mother’s death. Under the statute, the brother has the burden of proving by clear and convincing evidence that the mother did not intend for the sister to be the sole owner of the account and intended for it to be divided equally between her children. The “clear and convincing” evidentiary standard is not easily met; the brother would have a tough time proving his case.

As I have presented the facts, however, the brother has caught a break. Under New Jersey case law, because the sister lived with the mother at the time her name was added to the account, the sister would have the obligation to prove that the mother added her name to the account for a reason other than convenience. In other words, the sister would have to prove that the mother intended for her to keep all of the money in the account.

So, the brother may win, and ultimately, the mother’s intentions may be carried-out; her estate will be divided equally between her children. But how much do you think the litigation over the bank account would cost: $5,000; $10,000? And, what about the non-economic cost of the litigation? What do you think the relationship between the sister and brother would be like from that point forward?

If mom wanted the daughter to have access to her bank account so the daughter could pay the mother’s bills – the mother should have signed a power of attorney naming the daughter as her agent. This would have accomplished mom’s goal as to access and would have prevented the litigation between the sister and the brother.

The lesson: Plan properly. Do not count on children to work things out amongst themselves after your death. They often don’t, and the cost of the ensuing battle could be staggering when compared to the cost of simply planning correctly.

Joint bank accounts can feel like an easy solution, but the risks — from tax issues to loss of control — are real for many people. Before deciding, it’s worth weighing both the advantages and the potential downsides so you’re confident in the choice you make.