Understanding Bank Accounts to Avoid Unintended Beneficiaries
Have you ever known anyone who added a family member onto their bank account in order to allow them to pay bills? If so, there is a good chance the account was set up in a way that will prevent it from being distributed according to their estate plan.
When you pass away, most people assume that their assets will be distributed according to a will or trust; however, a person’s last wishes can be thwarted if they fail to properly understand the effects that certain choices in bank accounts will have on the distribution of money in that account. For example, if a widow has a will that equally distributes her assets to her two children, but she adds one of the children onto her bank account so they can pay her bills, the widow may have inadvertently created a joint bank account with the right of survivorship. If this is the case, this bank account will not be distributed equally between the children under the will because the assets transfer instantly on death to the child who is on the account as a joint owner.
This result is due to a “right of survivorship” on the bank account. When you create a joint account, the right of survivorship will be an option on the application. While an account set up with a right of survivorship is perfect for married couples or domestic partners, it is not the appropriate account for those seeking to allow another individual to access their account for certain, limited purposes. Even without a right of survivorship, Michigan law presumes that joint account holders are equal owners of the account. Thus, even with no right of survivorship on a joint account, at death, it is presumed that the joint owners hold the account equally. Under this presumption, fifty percent of the balance will be distributed according to your estate plan and the other half will be the property of the surviving joint account holder. Furthermore, a creditor of one of the joint owners is presumed to be able to garnish the entire account balance, even if the other joint account owner has no relation to the debt.
To avoid these problems, you can create a revocable living trust to handle the assets or give your family member a durable power of attorney, which allows them to access funds under certain circumstances (e.g. incapacity). Alternatively, you can request your bank to set up your account with a “convenience” signer. With these approaches, you can allow a trusted family member to access your funds during your lifetime, while ensuring that when you pass, the remaining money will be distributed according to your estate plan.
Issues like this are a common occurrence in the field of probate and estate planning. The only way to be sure that your assets will be distributed according to your desires is to seek counsel from an experienced estate planning attorney. If you would like to have one of our experienced estate planning attorneys review your estate plan or draft an estate plan, please contact the Law Offices of Shifman & Carlson, P.C. at 248.406.0620 or at www.shifmancarlsonlaw.com.