A common useful estate planning tool is a joint account, a situation whereby family members jointly hold an account with a “right of survivorship.” This means that when one joint owner passes, the other owner automatically takes ownership of the account funds. Under North Carolina law, these funds generally pass outside of the decedent’s estate. As such, joint accounts can be particularly useful for individuals who hope to help their heirs sidestep the probate process.
Still, the use of joint accounts warrants caution: Family disputes can easily erupt over the use and abuse of jointly held accounts.
A Common Dispute: Ownership of Funds
Although two (or more) individuals can jointly own an account, it does not follow that they jointly own the funds within the account. While this may seem like mincing words, it can seriously impact the proper use of account funds: A court may look askance at certain account transactions if challenged and as such, it is vital to understand who owns what funds in an account.
In these cases, context is key: In determining the ownership of funds within a joint bank account, courts consider factors like:
· Who deposited funds into the account, and when;
· The source of the funds (gifts, income, etc.); and
· The intent of the person who deposited the funds, i.e., did that person intend the funds to be shared, or did he or she deposit a gift check or income for safekeeping within the account?
In some cases, funds deposited into a joint account are deemed shared, for instance, when the account holders are married and the funds comprise shared income. However, in other cases, funds may constitute the depositor’s sole property, for example, if an adult child is helping an elderly mother manage her finances. In the latter case, the mother would be deemed the owner of the funds, even though she shares the account with her adult child.
When Abuse Arises
Unfortunately, issues of ownership are often muddy and can lead to legal disputes.
Consider the example of an aging parent who asks his adult child for help managing his finances and makes her a joint owner on his bank account. Each month, the father’s pension and social security income is deposited into the account, and the daughter uses the funds to pay his monthly bills. However, as the months pass, the daughter starts to add a few extra items for herself to her father’s shopping list and even writes checks to herself from the joint account, erroneously believing that because she is a joint owner named on the account, she has the right to spend her father’s money.
Should the family end up questioning the father’s mental capacity one day, the sister’s conduct may be called into question: Did the father authorize these financial transactions? If so, how much? Did he even know about it? Did he intend for the funds to pass to his daughter by right of survivorship after his death? These types of questions leave family members in the difficult position of evaluating a sibling or parent’s conduct, which can often lead to familial strife and even legal action.
In considering how a joint account has been managed, courts will generally make a fact-intensive inquiry into who owned the funds, whether the funds were used in both account holders’ best interest, and whether the account owner approved of the use of the funds. These questions are particularly difficult to answer when one owner suffers from diminished mental capacity and can strain familial relationships.
Experienced Estate Planning Attorneys
Wilson Ratledge assists clients in various aspects of estate planning. There are numerous considerations to evaluate before making significant financial decisions, like adding a family member to a joint bank account. Our experienced estate planning attorneys can discuss your options and help you decide how to best manage your financial affairs. Contact one of our attorneys today at 919-787-7711 or via our contact form below.