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Sunday, October 9, 2016

Home-made estate planning strikes again

I often give warnings in this blog to parents about adding their children to their bank accounts as joint owners. It's one of those steps that people take without legal advice without realizing that things are not going to work the way they expect. It happens every day. A reader recently wrote to me to ask why her sister was required to apply for probate when she was a joint owner of their father's account. Here are her letter and my comments:

"My dad left over 60,000 to my older sister and I, she is his POA, executor or his estate and is joint on his bank account, when she went to bring his death certificate to the bank they put a hold on his money saying it had to go into probate. If she is joint on his account and was his POA and executor does the money not go to her? my dad only made a holographic will which he thought would suffice. He did have other children but has given them and their mothers money over the years, he did not give any to our mom or to us and wished to make up for that by leaving us the money he had left. Does it have to go into probate? Or can my sister take it out of the bank legally? we live in Ontario"

Home-made estate planning strikes again.

Unfortunately, things would have worked out better and run more smoothly if your Dad had sought legal advice before taking steps that he thought would be effective. Plenty of people are in the same boat, that is, having parents or grandparents who accidentally brought about the opposite of what they intended.

The bank is correct in saying that the funds in the account belong to the estate and not to your sister. The law says that when a parent adds a child to an account or any other asset, that account or asset is held in trust for the parent's estate. This has been the law since 2007 but many people don't seem to be aware of it, or are aware but somehow think they will slip below the radar.

The funds in the account must be distributed according to your Dad's will.

The reason the bank is insisting on seeing a probate order before they release the funds is that they are not about to release the money to anyone without the protection of a court order. From the bank's point of view, there are risks here. For example, the will is holographic and the bank doesn't know whether it's valid, and therefore they don't know whether your sister is legally the executor. Also, there is the fact that there is a lot of money in that account and if they release it to someone who is not legally the executor, they are liable for that error. In addition, there is the fact, as I already mentioned, that the funds are supposed to be held in trust for your Dad's estate. The bank is simply not willing to end up in a lawsuit.

Your Dad could have clarified matters by confirming his intentions for that specific account in his will. Any decent estate-planning lawyer could have warned him about the complications of leaving an account like this in joint names with his daughter.

Being the person appointed under your father's POA does not help your sister because a POA becomes invalid as soon as the person who granted it passes away. Being appointed as the executor does not help your sister at the moment because of the reasons stated for the need to apply for probate.

You are certainly not the only family in this situation. Unfortunately, home-made estate planning is pretty common because people simply don't realize that they don't know what they're doing. Your Dad probably had the best of intentions but didn't think he needed to find out how the law applied to him.

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