Recently, I learned a very important lesson: it’s very important to know how our estate planning clients have their assets titled. My lesson? Advise my clients early and often that if the client decides to change the “ownership” of an asset (whether by adding another person to a checking account so that the person can pay bills or by filling out paperwork so that the asset is “transferrable on death” or “payable on death”), the client should first check with me, the estate planning attorney. And each time I meet with a client, particularly an elderly client, I should ask to see the client’s latest financial reports.
I am learning that financial advisors may speak with their clients more frequently than I. In that context, the financial advisor may tell the client: “Hey, you can avoid probate if we re-title the account by making it ‘payable on death’ to your loving niece.” Does the client call me first, of course not! But then, when the client fills out the paperwork, thinking she is doing a “good thing” because she is avoiding probate, the account that the client and I thought would be available to pay the costs of administering her estate and paying all her debts is not available because it now belongs to the niece.
Similarly, some clients are convinced that adding a trusted person to the bank account (so that the person can sign checks and pay the bills) is also a good idea. Maybe someone at the bank suggests it? Maybe the client has attended one of the numerous “free luncheons” sponsored by well-meaning financial advisors. In the past, it was easy to add someone as a “signatory” on a bank account, but that addition was considered for convenience only. Thus, when the owner of the account died, that additional signature person’s powers ended. But now the presumption, under the law in D.C. and Maryland at least, is that if you add someone as a signatory on your account and you do not make it absolutely clear that you are adding the person’s name for convenience only, then the bank considers the person a co-owner of that account. And when you, the actual owner dies: Bingo! the other person with what you thought was only signature authority now owns the account and all the assets in that account.
If you need assistance with deciding how to title assets or to make sure your bills can be paid in the event of your illness or death, I welcome you to contact me for a consultation. We can come up with a rational plan that meets your goals and avoid unintended consequences!