Put a Lid On It – Ensuring Continuity for Online Bank Accounts

Vast digitalization has our generation buzzing. Work and social affairs have rapidly become taken over, and largely run by, the Internet. Quick to follow suit have been the more historically pen-and-paper affairs, such as banking and bill-pay. This trend has succession planners concerned. What will your children do when they cannot access your electricity bills that no longer arrive in the mail? What about your checking account that could be overdrafted on due to automatic bill pay?

Setting up a durable power of attorney is likely the best solution, offering the most flexibility and predictability. However, rather than a power of attorney, the first instinct for many people is to create a joint bank account with a child, permitting the child to make necessary payments from the elder’s funds. Joint accounts have drastic implications that can be easily addressed.

The solution to the marriage between succession planning and digitalization is no different than any other marriage: communication. Before memory loss hits, or even worse, mental incompetence, make a plan for the storage of logins and passwords, and communicate that plan with one or more people who will be in charge of your finances. While some may be hesitant to keep all of this information in one place, there are some benefits to keeping all the honey in one hive.  Most of the account hacking occurs through computers rather than physical break-ins. So find an old pad and pen, and write the information down.  (If the thought of storing them together in your house is truly offensive, there are password protection companies like C-Net, 1Password, and PasswordSafe that will do this for you.) The key is to be proactive. Once your children know about these, the only ongoing concern is updating them.

With the login and password epidemic solved, the next matter is how your finances might actually be handled upon incompetence or death. Your child now knows where your login and password are to ensure that the lights don’t shut off; she may even have your checking and savings accounts information. But what will she do with it? A thought that most overlook is that you cannot simply use someone else’s account (without further rights) to pay their bills. Surely, people do it. But with the digital world progressing so rapidly, a simple plan on the front end can avoid putting your child in that position. This is where the oft-used joint bank account comes into play.

A joint bank account creates a right of survivorship, meaning that the account passes directly to the child once the elder dies. While the intent may be to allow a child to pay your bills, the reality is that both parties immediately share the power to withdraw from that account. With a joint account, there is a presumption that both parties are entitled to an equal share in the account. What might come as more of a shock is that, due to the nature of a joint account, creditors of both account-holders can access those funds. Accordingly, adding your child to the account may subject that account to the child’s creditors’ claims.

Often times the intention is to have the funds in the account remain as part of the estate once the elder passes. Setting up a power of attorney, again, is the most effective means of accomplishing that goal. The power of attorney can be limited to certain accounts; it can be springing, meaning it is not effective until incapacity; and the person with the power of attorney has a fiduciary obligation to handle funds in the best interest of the elder. Further, assets can be “transferred on death” to the account for ease in bill-paying once deceased. However, where a power of attorney is not established, the formalities of a joint account become crucial.

To avoid unauthorized withdrawals and creditors’ claims, a “convenience” account is much more appropriate than the standard joint account. Convenience accounts in New York are a creature of the courts, and were fashioned when it was clear that the creator of a joint bank account lacked the intent to create a true joint account with the right of survivorship, giving both parties an equal share.  While it sounds simple, it is sometimes difficult to prove, and numerous factors are considered.

A joint bank account has a signature card, and the first issue is whether the card contains survivorship language. If such language is on the card, the presumption arises that the account was meant to be a true joint account, requiring the estate to prove the decedent wanted the funds to remain in her estate. This requirement is a difficult one to meet. Where the signature card does not include such language, no presumption of a joint account arises, putting the burden on the child to establish that it was a true joint account with survivorship rights.

Another major factor is the conduct of the surviving cotenant.  For instance, did the child actually have possession of the checks, withdraw money herself, or receive statements? If the child made withdrawals during her lifetime before the decedent’s death, then it would likely be deemed a true joint account.  This is where the digital world presents an issue. Paper checks and print bank account balances are becoming obsolete. If the child is making payments online, it would be quite simple for the child to make payments of her own bills or expenses without the elder knowing of them. And with proof of such payments, it would be hard for the estate to deny it was a true joint account.

Several states have adopted the Uniform Multiple Persons Account Act, which specifically allows for the purposeful establishment of convenience accounts. While New York has not adopted this act, the convenience account still exists. It simply requires the other party to act as the other’s agent. The result of such an account is that there is a single-account holder and an authorized signer who can write checks, withdraw and deposit funds on behalf of the account-holder. Practically, it does not prevent the authorized actor from taking the money, but it creates a legal action against them if they do it.

Presuming a power of attorney was not created, make it explicitly known that the account is a convenience account if that is the intention. This includes the language on the signature card and the actual use of the funds during the life of the account. This will allow, and restrict, the use of all of those simple logins and intricate passwords to pay bills only for your benefit, and ensure that the remaining funds pass to the estate of the decedent rather than to the surviving joint-account holder.

Be it an unsuspecting child or her unknown creditor, clarity regarding joint accounts keeps the lid on the jar.

Tyler Ellis is a Law Clerk with the firm of Boylan Code LLP.  A 2013 graduate of the State University of Buffalo Law School, Tyler has taken the NYS Bar Exam and expects to be admitted to the Bar in February 2014.

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