Articles
Bench & Bar of Minnesota is the official publication of the Minnesota State Bar Association.

The Poor Man’s Will: Risks of Joint Tenancy in Estate Planning

Joint accounts with children are a common recourse for aging parents seeking help with money management, but may give rise to disputes upon the demise of the parent if the will does not specify that the joint account is to be considered part of the estate.

Joint accounts are often referred to as a “poor man’s will” because they allow an individual to give assets to another upon death without resort to the probate process.  Many folks have the perception from hearing horror stories that the probate will consume the entire estate.  To avoid the court system, attorneys and taxes, many individuals set up joint accounts, believing this will simplify the process and allow the other account holder easily to obtain the money following one’s death.

Unfortunately, many parents have the naïve perception that the child they designate as joint account holder will treat the other siblings fairly.  Complicating the process is a common belief that having a will avoids probate.  As a result, many individuals set up a joint account, have a will that divides everything equally, and then expect the surviving joint account holder to divide it in accordance with the will.

Oftentimes the distribution plan of a parent works out well.  Other times, someone may question whether the surviving joint account holder is the owner of those funds or whether the account was set up for convenience of distribution.  If there are no court documents to determine the answer, the heirs/devisees named in the will no doubt will feel aggrieved and want what they believe is their fair share.  The next step then often has those left out setting up an appointment with a lawyer and subsequent litigation.  Unlike many commercial disputes, disputes among family members can become highly emotional and these controversies can permanently end relationships.  The litigation itself can be quite charged in response to the emotional tension.

Asset of the Estate?

Many who practice in estate planning have experienced that trial judges exercise great discretion in deciding whether to include a joint account as an estate asset.  Some courts consider joint accounts to be an estate asset and others do not.  What generally creates a dispute is when a will is drafted that states a decedent’s estate is to be distributed equally among all of the children with no reference to the joint accounts.  This leaves confusion as to what the decedent actually intended.  When these cases are litigated, the introduction of a will can be very persuasive to a jury as it relates to the intent of the decedent.  This powerful testimony is difficult to overcome.

The Minnesota Supreme Court in a recent decision (In re the Estate of Patrick W. Butler, A09-1208, __ N.W.2d __(Minn. 2011)) established a bright-line standard so that individuals can be more confident that their wishes will be honored when they set up a joint account naming their intended beneficiary.  Any challenge to the designation requires not only clear and convincing evidence to the contrary, but must also specifically refer to the account at issue.  Clarifying the law, the supreme court in Butler applied a new rule, which is elegant in its simplicity.  Minn. Stat. §524.6-204(a) already made clear that if a will made specific reference to a joint account, the account would be divided in accordance with the will rather than given to the joint account holder.  The court expanded this requirement to include all forms of evidence that might be offered to prove a decedent intended something other than that the joint owner receive the joint account.

Going forward, only evidence that specifically refers to the joint account at issue will be relevant in determining the proper disposition of that account.  Generic evidence of intent, such as a will treating all siblings equally or evidence that there was no reason to favor one of the children over another, is now clearly irrelevant to the proceeding.  If the parties commence litigation and the matter proceeds to trial, a motion in limine will probably be granted excluding this type of general evidence and only evidence specifically referencing the joint account will be deemed admissible.

This decision will reduce ambiguity regarding funds held in joint tenancy.  Without specific evidence indicating that the account was set up with intent that proceeds be distributed contrary to joint tenancy rules, upon the death of an account holder the survivor will be entitled to the proceeds.  Practitioners working in estate planning should advise their clients that a joint account trumps a will unless it is made clear to the contrary.  Clients intending to set up an account in joint tenancy for purposes of convenience of the parties or to avoid probate should be warned that the survivor will be considered the owner of the account upon one’s death.

Problem Scenarios

Many practitioners who work in elder law see a common scenario: the elderly parent is living with one of the children who is handling the parent’s financial affairs.  The parent and child often set up a joint account out of convenience, to make money management easier and simplify paying the parent’s bills.  If the joint account contains no reference to ownership upon death of one of the parties, under the Butler decision, the joint account holder becomes the owner.

In many instances, the child named joint owner, who is handling the financial affairs, may feel that he or she has shouldered a heavier burden than other siblings and is therefore entitled to the joint account proceeds.  This may or may not have been the deceased parent’s intent.  To avoid this issue, the account should be set up so that it is titled in the name of the parent only, allowing the child signatory rights (such as by power of attorney).  In the alternative, if the bank allows one to specify what happens to the proceeds upon death of the depositor, that should be carefully reviewed and appropriately checked.  Another alternative, though not commonly seen, is to make a specific reference in the will or in some other admissible form that identifies the individual’s intent.

Another scenario that estate-planning lawyers commonly see is where broad powers of attorney have been established that allow the attorney-in-fact to make transfers to him or herself.  Often the attorney-in-fact is one of the children and exercises authority after the principal’s cognitive abilities have declined.  The child, with a devious intent or not, frequently transfer funds into a joint checking account or another joint account.  Under the Butler decision, upon the principal’s death without any clear statement of intent of a different distribution, the joint account holder becomes the owner.  This result may not be the intent of the decedent.  Whether such conduct by an attorney-in-fact is a breach of fiduciary duty or other claim of law (such as conversion or theft) that may be cured by a constructive trust or other form of relief is another issue, but the person abusing the power of attorney will certainly rely upon the presumption under Butler that the joint account belongs to the attorney-in-fact after the principal’s death.

The Internet Age has also brought on a set of problems.  Many individuals go online and obtain forms to prepare their own will or power of attorney.  Many of these forms are not individualized to the state nor explain the nuances involved in joint accounts or other matters.  Such forms are thus often “legally blind” to the reality that unless the will makes a specific reference to the joint accounts, in Minnesota at least, the latter govern.  From a practical standpoint, a lay person who sets up a joint account and/or does their own will may save a few dollars, but their estate may end up being distributed in a way that was not intended.

A similar problem is the situation where a person opens a joint account after a will is written.  If the account is not opened in a manner that specifically reflects the intent to include the account in an estate, the person creating the account may be working under the false presumption that their will controls the disposition of the joint account.

One scenario that still could result in litigation is where the will refers to all joint accounts being governed by its terms.  Would this be specific enough under Minn. Stat. §524.6-204(a) to cause the distribution to be governed by the terms of the will?  The supreme court’s rationale for its holding appears to leave open a contest of ownership in the right circumstances.  Unlike Judge Johnson’s dissent in the Minnesota Court of Appeals decision (In re the Estate of: Patrick W. Butler, Deceased, A09-1208, __ N.W.2d __ (Minn. App. 2010)), wherein Judge Johnson relied on the statutory presumption of survivorship rights in joint accounts, the supreme court’s decision was that clear and convincing evidence would allow a challenge.

Conclusion

In sum, those doing estate planning need to be aware of these issues and potential pitfalls.  Failure to consider the entire estate and ownership may result in a distribution that is different than the intent.  In addition, failure to have a clear plan may result in disputes and a lifetime of discord amongst family members.

 

William A Erhart is a partner in Erhart & Elfelt and practices in areas of elder law, estate planning, and probate.  He represented appellant Maureen Kissack in In re the Estate of Patrick W. Butler, Deceased.  Attorneys John Huberty and Robert McLeod contributed to this article.

 

Leave a Reply

Articles by Issue

Articles by Subject