What You Should Know About Ways to Title a
Bank Account
by Tom Bouman
by Tom Bouman
1.
What is the importance of bank account
titling?
In
the context of estate planning, the way an account is titled is critical.
The choice often determines who will inherit the account after the account
owner’s death. In many cases, the account owner’s will or living trust is
irrelevant.
For example, consider an account that is titled jointly between Parent and Child A. If Parent dies, Child A inherits the account regardless of whether Parent’s will directs equal distribution to Child A and Child B.
For example, consider an account that is titled jointly between Parent and Child A. If Parent dies, Child A inherits the account regardless of whether Parent’s will directs equal distribution to Child A and Child B.
2.
What are the ways to title a bank account?
Arizona
law permits several ways to title a checking account, savings account, or
Certificate of Deposit, whether at a bank or credit union:
- Single party account. This
type of account is owned by an individual person. If the owner dies,
the account is subject to probate and would be distributed in accordance
with a valid will.
- Single party account with
Pay-on-Death designation. Also owned by an individual
person, this account is paid directly upon death to the named
beneficiary.
- Multiple party account without
right of survivorship. This type of account is owned by two or more
persons. If one of the owners dies, the surviving owner or owners
still have access to the account, but the portion contributed by the
deceased owner is subject to probate.
- Multiple party account with right
of survivorship.
Also owned by multiple persons, this account passes without restriction to
the surviving owner or owners. When there are no surviving owners,
the account is subject to probate and would be distributed in accordance
with a valid will of the last owner to die.
- Multiple party account with right of survivorship and POD designation. This type of account adds a pay-on-death designation, which pays the account directly to the named beneficiary when all account owners have died.
- Trust. This type of account is technically held by a trustee. Although the trust never dies, control of the account will transfer to a successor trustee in accordance with provisions outlined in the trust document.
3.
What is a Pay-on-Death Designation?
A
Pay-on-Death Designation (“POD”) is a probate avoidance technique that can be
added to the titling of a bank account. If used, the bank will have a
record of the death beneficiary for the account. Upon the death of the
account owner, assuming the named beneficiary is alive, the funds in the
account belong to the beneficiary. If there are multiple beneficiaries,
then the funds in the account belong to the named beneficiaries in equal
amounts. If there are no surviving named beneficiaries, then the POD
designation is disregarded and the funds in the account belong to the estate of
the deceased owner; i.e., subject to probate.
4.
May an Investment Account have a
Pay-on-Death Designation?
Yes,
an investment account may have a POD designation, although it is properly
described in Arizona as a transfer-on-death (“TOD”) designation. Some
financial institutions may use the term “in trust for” (ITF) to describe the
same concept as the POD or TOD designation.
5.
Why not name Child as joint owner of all
accounts owned by Parent?
Many
elderly persons add a child as joint owner of bank or credit union accounts
during their lifetime. Estate attorneys rarely recommend this strategy
for many reasons including:
- Exposes the parent’s assets to the child’s creditors. If the child is sued, the child must disclose the joint account to the court. The burden falls on the child to convince a court that the child contributed nothing and that the account really belongs to the parent. Similarly, the account would be a reportable asset if the child filed for bankruptcy.
- Parent loses full control of the account. Although intended to facilitate a child helping the parent, a controlling child or the jealousy of other siblings could spoil the arrangement. Similarly, if the child needs money, there is nothing to prevent the child from taking it without permission.
- Assumes the child is a saint. The parent can only hope the child “does the right thing” and uses the joint account to pay estate bills and then shares it with other beneficiaries as directed in the parent’s will or living trust. The child’s attorney would be correct under the law to counsel the child otherwise.
About the Author
Thomas J. Bouman provides legal counsel in the areas of estate planning, estate settlement, and asset protection. He brings a highly systematic approach to the practice of law, which is critically important when wading through the complex, and often bizarre, legal requirements associated with estate and trust law. Mr. Bouman is author of the Arizona Estate Administration Answer Book and a prominent member of Wealth Counsel, LLC, the nation’s premiere organization of estate planning attorneys.
Thomas J. Bouman
Attorney - Author - Speaker
www.TomBoumanLaw.com
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