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Joint Acct - LOI made prior to one's death

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Let's suppose there are CDs held jointly as "Person A" or "Person B", where each holder has single signatory access to withdrawal funds.  Person A desires to have assets transferred, upon his death, to a separate account without Person B's name on it.  Could Person A draft a Letter of Instruction, each week, requesting such transfer, and when Person A dies, his (adult) child immediately submits the most recent LOI to the bank where the CDs are held so the CDs would be liquidated and/or transferred into this separate account (without Person B's name on it) as a way to essentially defeat Person B's survivorship rights?

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Ain't gonna work.  1) The survivorship rights take precedence.  2) No bank I know of would act on such a "letter of instruction."

 

Your hypothetical "Person A" has gotten himself into quite a pickle, hasn't he?

 

Why doesn't Person A have a heart-to-heart talk with Person B about his testamentary wishes?  And then consult with an estate planning attorney?

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I agree, you cannot defeat the survivorship feature of the accounts in that manner. Even if the bank would honor the LOI when the person was alive, it would not do so once the person has died. The request would be worthless the moment Person A died. 

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@ Tax counsel,

 

Theoretically, how would the bank know of person A's death that quickly?  Suppose Person A mailed or asked his adult child to deliver such an LOI and Person A died while it was en route.  The bank wouldn't necessarily know ahead of time that Person A has died and presumably would be under obligation to honor the written instruction signed by Person A, no? 

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"Why doesn't Person A have a heart-to-heart talk with Person B about his testamentary wishes?"

 

Well, it's a sticky situation.  Person A, who is the source of the money, is married, but co-habitates with Person B (who is not the spouse).  A while back, Person B somewhat coerced A into putting certain assets in joint name with B and naming B's kids as partial beneficiaries (As kids would get 75%). 

 

A has recently began not to trust B and and may desire to sever the right of survivorship to ensure B doesn't funnel monies to B's children at the expense of A's own children (from his marriage), should A die first.   But A knows that B looks at those assets as B's when A dies and B wouldn't easily accept changing that now...it would likely cause a lot of chaos and psychological abuse on A to even ask B about changing it as such.   Since A is still living with B and may continue for some time, A doesn't want to "rock the boat" by broaching this topic.   

 

A is ok with B having money for living expenses if they're still together when A dies, but A is looking for ways to ensure that B doesn't have unfettered access to all of it at once, which could allow B to "blow it all" and/or channel monies to B's children so as to subvert A's desire that they get 75% of any remainder funds should there be any left when B dies.  So, A's thought is to find a way to liquidate/withdrawal or transfer most of the CDs upon A's death so that they can be under control of A's adult child, whom A trusts implicitly and who has agreed to act as a trustee of sorts, ensuring that B has money to live, but not to waste or funnel to her own kids.  A is looking at maybe setting up a trust to do this, but hasn't yet found a way to transfer the assets into the name of the trust upon A's death without avoiding them going into probate first, which could end up with B receiving sole ownership.

 

 

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@ Tax counsel,

 

Theoretically, how would the bank know of person A's death that quickly?  Suppose Person A mailed or asked his adult child to deliver such an LOI and Person A died while it was en route.  The bank wouldn't necessarily know ahead of time that Person A has died and presumably would be under obligation to honor the written instruction signed by Person A, no? 

 

Whether any bank would accept it in the first place depends on the bank — no law compels it to have a policy to honor a LOI. Second, even if the child effectively deceived the bank by failing to disclose the death of Person A, Person B would know of the death and the child's actions to take what is, at the moment of A's death, Person B's money, and would very likely take legal action against the child for taking Person B's money, which may include both suing for a return of the taken funds and filing a criminal complaint alleging theft or fraud. Person B would likely sue the bank as well, and the bank in turn may also go after the child and make a criminal complaint for bank fraud. The extent to which any of those actions might succeed I cannot say absent the exact facts of what occurred and what state’s law applies. But it is certainly possible that things would turn out very badly for the child. Thus, this is a course of action that could be dangerous for Person A and his/her child to take. If Person A wants to change the survivorship feature and wants all the funds to go to his/her child, he or she really ought to consult an estate planning attorney in the state where the CD accounts are located. Do it wrong and it could turn out worse than doing nothing at all. 

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It's an interesting question. Not all joint accounts have rights of survivorship, and a lot depends upon who actually owns the money in the CD. This frequently depends upon who contributed the funds in the first place, regardless of who has authority to withdraw the funds, but that is a matter of state law. State law probate codes often make provision for "payable on death" (POD) accounts, but how they are established, or modified once they have been established, depends upon the particular state.

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So the basic problem here is that Person A is reluctant to deal with this while Person B is alive because Person A doesn’t want to rock the boat, right? Well, to be blunt, Person A is going to have to muster the fortitude to do just that if he or she wants to do it right. Once Person A dies, the money in any joint accounts with a right of survivorship he /she had with Person B at the time of death will become the sole property of Person B. It’s automatic at the moment of death. Trying to do something to post-death to change that isn’t a good plan; it almost certainly won’t work. Person A needs to deal with it up front before he/she dies to ensure the outcome he or she seeks. 

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I appreciate the responses here.  Person A doesn't want to commit fraud in any way, but since A is the original source of the assets, maybe there is some recourse within the law. 

 

Another wrinkle is the house they are co-habitating in is owned outright, also in Joint tenancy.   Person A would rather have that held tenants in common to avoid B mis-allocating the resultant assets should A die first.  I was reading where a joint tenant may be able to unilaterally sever the joint tenancy, without the other tenant's consent/knowledge, by conveying his/her interest in the property to someone else (and possibly right back to him, such as in a "strawman" arrangement with the assistance of a lawyer), thereby automatically reverting the ownership to tenants in common.   Is that viable as far as the house?  Is there similar route to take as far as CDs/bank accounts etc?  State = NJ

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"Why wouldn't person A simply redeem the CDs and put the money in an account that is not jointly owned?"

 

because person B is a cohabitant and is well aware of these assets in her name for B if A dies while they're still "together". It gives B peace of mind.   B would make things more difficult for A if B became aware of assets being transferred out and B would not likely accept his desired arrangement if he should predecease her, of having A's adult child as trustee, managing the and having discretion over distributions for B. But if A can find a way to legally transfer those assets out of joint tenancy (such as what it appears you can do with Real Property, by writing up and recording a severance document or deed with the county or by conveying interest in the property then getting it conveyed back etc.), then A would possibly like to do that.

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Do I understand correctly that A wants B to enjoy a reasonable income from these assets, if he dies first while they are still "together," during her lifetime, but when she dies, he wants there to be something left over to go to his adult children? And, A doesn't really trust B to not go crazy and spend it all if it goes to B directly, or that B will honor A's wishes to leave something to his children?

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Do I understand correctly that A wants B to enjoy a reasonable income from these assets, if he dies first while they are still "together," during her lifetime, but when she dies, he wants there to be something left over to go to his adult children? And, A doesn't really trust B to not go crazy and spend it all if it goes to B directly, or that B will honor A's wishes to leave something to his children?

 

Pretty much.

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I have other questions. Does A trust his adult children to honor his wishes and to treat B fairly, if A dies first? Is there any hostility or resentment between the children and B, on either side?

Anything is possible, but A trusts A's adult child to treat B however A wishes if A dies first, because the adult child is trustworthy, even though one could speculate there may be some modicum of resentment there between A's child and B.

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Anything is possible, but A trusts A's adult child to treat B however A wishes if A dies first, because the adult child is trustworthy, even though one could speculate there may be some modicum of resentment there between A's child and B.

 

I'll tell you from experience that Person A is rolling the dice in trusting his child to follow any wishes that Person B cannot enforce. I’ve seen many instances over the years of clients who insisted their child or whomever was completely trustworthy and would carry out their wishes, only to see that once the kid got his/her hands on the money quite suddenly his/her parent’s wishes were “forgotten.” It happens a lot. Note, too, that by giving the money outright to the child it subjects the money to any creditors of the child and it may result in unwanted tax effects if the child does follow the parent’s wishes.

 

As you can appreciate, the rules for real estate and for intangible property differ in a number of respects. It's not going to work quite the same way for the CD accounts as for real estate. The way to break up the survivorship feature on the bank account that is analogous to breaking the survivorship on jointly held real estate that you mentioned is to take the funds out of the current joint bank account and establish a new bank account that is co-owned by Person A and Person B without survivorship. That may still leave Person B to inherit outright half the account when Person A dies, however. It would also mean that Person B would know what happened.

 

You seem to want Person B to inherit none of it outright but have the child of Person A get the money and give to Person B money as needed. What you are basically saying Person A wants is a trust, but Person A doesn't want to risk getting Person B upset by suggesting it. That's a problem Person A is going to have to get over — as I said before, Person A may just have to get the fortitude to deal with Person B to get this done correctly. 

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I expect a trust, either inter vivos or testamentary, would do the trick. The question is who to have serve as trustee after A's death. One of the children could do it, if generally trustworthy. If things are properly spelled out in the trust and if B is aware of the terms of the trust and is keeping watch to protect her interests, it could work out fine. The alternative is a corporate trustee, which is expensive.

 

It's a normal drafting problem, and I'm sure that A can talk B into accepting it. Everyone likes being the beneficiary of a trust. It's something to brag about and it's a nice monthly or quarterly reminder of A's affection once he's toes up.

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I expect a trust, either inter vivos or testamentary, would do the trick. 

 

A testamentary trust alone would not solve the problem. The CDs are in an account owned as joint tenants with a right of survivorship. Thus, as things stand now, the CDs would become Person B's property the moment Person A dies. In that case, the CDs never become part of Person A's assets and would not be subject to Person A's will. Quite simply, the CDs would never be affected by the testamentary trust unless the current joint survivorship account is ended in some fashion prior to Person A's death. Using an inter vivos trust presents the same challenge: in order for the trust to work, the trust must own the CDs, and that means getting the money out of the current joint ownership accounts. One way or the other, I think Person A is going to have to deal with Person B if Person A wants to change the arrangements in the manner Person A wants.

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OK, but he's not dead yet and he can change the CD without person B's consent, assuming they don't both need to sign off on cashing it in. I don't know about the real estate. Does he have a separate transferable interest? If so, prior to death, he could deed it to an inter vivos trust. A testamentary trust wouldn't work for the real estate,

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OK, but he's not dead yet and he can change the CD without person B's consent, assuming they don't both need to sign off on cashing it in. 

 

He could possibly cash the CDs and move the money into a different account that is not a joint survivorship account before he dies, true. But Person B may still find out about that before Person A dies, so Person A still has the challenge that he may have deal with a confrontation with Person B, which from the sound of it is what Person A is trying very hard to avoid.

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Part of the complexity of this dilemma is we cannot predict things like who will die first and what actions might one or the other party take.  So, maybe it's about making contingency plans for each scenario. 

 

What if person A appoints A's child durable POA, with express banking permission, and put the POA on file with the bank that holds the CDs for A & B and other personal accounts for A.   Prior to A's expiring (or at least prior to his POA and bank knowing of his expiration), A's child can go to the bank as POA and redeem and move most of the money from the CDs to another account without B having direct access to it    That would seem to be a decent contingency plan to cover situations where A becomes incapacitated or near death, where's there's some lead time to take such action within the law, as I understand it.

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A durable power of attorney lapses the moment the principal (person A) dies. So, use of the POA would clearly not work after Person A has died. It could work if the agent of Person A moved the funds before Person A’s death, if the bank accepts the POA (and nothing in the law requires the bank to accept it). But of course that runs all the same risk of problems with Person B that would arise if Person A did that himself. And, it also runs the risk that the child of Person A, once he or she gets the money after Person A’s death, will leave Person B out in the cold.

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