A common occurrence: an elderly parent, or one who is unused to managing his finances after the death of a spouse, takes one of his children to the bank and asks to make the child a joint owner of his deposit accounts. The parent is doing this to allow the child to assist him in paying bills, and perhaps to avoid probate of the accounts when the parent passes away. In doing so, however, the parent often fails to appreciate the legal risks and ramifications.
In the recent case of Henke v. Klawitter, the Wisconsin Court of Appeals determined that the decedent (Clarence) created a joint account with his daughter (Carla) for purposes of convenience only, and that the funds remaining in the joint account at the time of Clarence’s death properly belonged to his estate, rather than Carla. This may seem like the obvious result to a layperson, but to an estate planning attorney this is a surprising and unexpected victory for the estate. The case was even recommended for publication (many Court of Appeals decisions are unpublished and therefore have no precedential value), suggesting that the case either clarifies an existing rule of law or could be of substantial and continuing public interest.
Under Wisconsin law, funds remaining in a joint account at the time of one of the owners’ deaths are presumed to pass to the surviving joint owner, rather than the deceased owner’s estate. This presumption can be overcome, but not easily. Doing so requires proof of the decedent’s intent at the time the account was created, which is sometimes years prior to his or her death. More specifically, overcoming the presumption requires clear and convincing evidence that the decedent did not intend to create an account with rights of survivorship.
In Henke, the Court relied on testimony from various parties, including Carla herself, the bank teller who assisted Clarence in adding Carla as a joint owner, and other family members and friends of Clarence. Notably, there was testimony that Clarence did not understand the legal import of making Carla a joint owner; he told other family members he had only added her as a power of attorney on the account. The Court ultimately found that Clarence intended to create an “account of convenience,” rather than a true joint account.
Clarence’s wishes were ultimately realized, but the Court of Appeals’ decision was rendered on October 12, 2023, almost two years after his death. The estate likely spent thousands of dollars in attorney’s fees, if not tens of thousands, to pursue recovery of the funds. The relationship between Clarence’s children was undoubtedly affected by the dispute. All of which could have been avoided if Clarence had fully understood both the legal effect of the joint account and his other available options.
There are far more suitable solutions to the needs joint accounts are often created to fulfill. A properly drafted durable power of attorney for finances allows the designated agent to transact business on the principal’s accounts, including payment of bills. An agent under a power of attorney also has fiduciary duties to the principal; the agent is required to act only on the principal’s behalf and for his or her benefit. A joint owner, on the other hand, has the right to use the funds as he or she desires, including withdrawing the funds in their entirety, without the consent of the other owner. Even if the joint owner faithfully fulfills his or her duties as agent, his or her unfettered ability to access the joint account may raise questions or concerns from other family members, potentially causing family discord.
There are also more reliable ways to avoid probate than designating a joint owner. One document that does not avoid probate is a Last Will and Testament – it only directs how the probate should be administered and the assets distributed. For larger estates or those with numerous or minor beneficiaries, a revocable trust (also called a living trust) may be the best solution. If there are relatively few beneficiaries who are all adults and get along well, transfer-on-death or payable-on-death designations can be a quick and easy way to avoid probate. In other words, there is no one size fits all solution, but a joint account is rarely the correct answer.