Many do not realize the signature card on your bank account (as to the type of account established) determines how the funds in the account pass at the owner’s death. Thus, even if a person has a Will, the signature card could establish that the account does not pass by Will depending on the type of account (although it is often better to have a Will or trust to protect a beneficiary from issues ranging from the potential creditor problems, marital problems, disability, etc. of the beneficiary).
The following different accounts describe ownership rights and how the account would be transferred at death:
(1) Single-party without a P.O.D. (payable on death) designation
Of course, the party to the account is the owner of the account. Since the account has no beneficiary designation, it passes by the owner’s Will. If there is no Will of the party, then it passes by the laws of intestacy (which is often much more time-consuming and difficult as an heirship determination could be required unless the total assets of the deceased are less than $75,000 in which event a Small Estates Affidavit and Order is often available in Texas).
(2) Single-party account with a P.O.D. designation
Not only is the party (the person who has the present right to the account) the owner, but the account transfers on death to the named beneficiary. The financial institution generally requires a death certificate or court order prior to distributing to the P.O.D. beneficiary.
(3) Multiple-party account without right of survivorship
The parties to the account own the account, in proportion to the parties’ net contributions (the sum of all deposits made to the account by or for the party less all withdrawals made by or for the party that have not been paid to or applied to the use of any other party, plus a pro rata share of any interest or dividends included in the current balance of the account) to the account. The financial institution may pay any sum to a party at any time. However, on the death of a party, the party’s ownership of the account passes as a part of the party’s estate under the party’s Will or by intestacy. This is often referred to as a Tenants in Common Account. So, just because there are joint owners, does not necessarily mean that the surviving owner would be entitled to all of the proceeds.
(4) Multiple-party account with right of survivorship
The parties to the account own the account in proportion to the parties net contribution to the account. The financial institution may pay any sum in the account to a party at any time. On the death of a party, the party’s ownership of the account passes to the surviving parties.
(5) Multiple party account with right of survivorship and P.O.D. designation
The parties to the account own the account in proportion of the parties net contribution to the account. The financial institution may pay any sum in the account to a party at any time. On the death of the last surviving party, the ownership of the account passes to the P.O.D. beneficiaries.
(6) Convenience account
The parties to the account own the account. One or more convenience signers to the account may make account transactions for a party. A convenience signer does not own the account. On the death of the last surviving party, ownership of the account passes as a part of the last surviving party’s estate under the last surviving party’s Will or intestacy unless there is a P.O.D. designation in which event it passes to that beneficiary. The financial institution may pay funds in the account to a convenience signer before the financial institution receives notice of the death of the last surviving party. The payment to a convenience signer does not affect the party’s ownership of the account.
(7) Trust account (which does not include a trust established by a Will or a trust agreement that has significance apart from the account like a revocable living trust) – which is in the name of one or more parties as trustees for one or more beneficiaries
The parties named as trustees to the account own the account in proportion to the parties’ net contributions to the account. A beneficiary may not withdraw funds from the account before all trustees die. The trust account is not part of a trustee’s estate and does not pass under the trust, Will or by intestacy unless the trustee survives all of the beneficiaries and all other trustees.
How you set up your account through a signature card at a financial institution is important since it dictates how assets pass – whether directly to a beneficiary or part of your estate or whether it is controlled by another owner that survives you. This is an integral part of your estate plan that is often overlooked.
If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.