by Jonathan A. Nelson
When it comes to fiduciary administration, few things appear so deceptively simple as multiple-party accounts.
What is a multiple-party account? This is the term the Virginia Code uses to encompass joint accounts and pay-on-death (“POD”) accounts at banks and similar institutions; it does not apply to most brokerage or investment accounts. From the banking side, these accounts are straightforward and low risk to the bank: when a person dies, the survivor(s) of a joint account and the beneficiaries of a POD account can be given full access to the funds without creating any liability for the bank. Because of this liability shielding, my experience is that banks far prefer having an account set up this way, compared to the bank’s risks and delays if the account ends up as a probate asset of a deceased account holder.
Unfortunately for everyone who isn’t the bank, this is not the end of the story. The complexity starts with Virginia Code § 6.2-619, which states that everyone on the multiple-party account bears a fiduciary obligation as under the Power of Attorney Act to everyone else on the account as to the others’ interests in the account.
During the lifetime of the other account holders, this can mean obligations to explain transactions. While understandable and probably fine between mom and an adult child she lives with, if mom starts to lose capacity, the obligation to provide information can expand to distrustful siblings; if instead of being set up as a multiple-party account, the account was titled with the caretaking child having access through a separate power of attorney, that power of attorney could exclude the troublemaker siblings from a right to demand mom’s financial information (but does not release the agent from fiduciary duties).
On the death of a multiple-party account holder, not only does that fiduciary duty continue as to the funds, but Virginia Code § 6.2-611 further provides that the decedent’s interest in the account is still available for satisfaction of the decedent’s debts. There is something of a presumption that a joint account is held 50/50 between two account holders, but that a court hearing can be held to define each party’s ownership of the account by taking evidence of contributions and expenses. For a POD account, the titling itself provides the presumption that the decedent contributed all of the funds in the account.
The process of clawing back the account’s funds involves the executor or administrator of the decedent’s estate suing the survivors/beneficiaries on the account (and the bank, if the funds are still held by the financial institution) and then proving the amount needed to satisfy the estate’s debts. Since those debts include the attorney fees to claw back the account, a contested suit can quickly destroy any benefit to the survivors or leave them having to pay back money they have already spent.
What are the takeaways from this information? Listen to your attorney or financial planner regarding how to title your accounts, even if your banker says he has an “easier” way. While the account setup may be more complex, you will usually end up with better planning and more flexibility in handling future uncertainties. I can also say from experience that it is a lot easier to tell beneficiaries they are getting less than they thought because the executor had to pay debts and expenses than to tell them they have to chip back in money they already hold; this is especially true if it takes a lawsuit to resolve this obligation.
Virginia attorney Jonathan A. Nelson uses his extensive legal knowledge and trial experience to resolve conflicts, negotiate settlements, navigate compliance matters, and vigorously advocate in the courtroom in order to achieve the best possible outcomes for his clients. He practices in estate planning, probate, trust and estate administration, corporate law, and civil litigation related to these fields.
The attorneys of Smith Pugh & Nelson, PLC, offer the experienced counsel, personal attention, and customized legal services needed to address the many complex issues surrounding estate planning, probate, and trust administration. Contact us at (703) 777-6084 to schedule a consultation.