Joint Ownership - Open Door to Litigation?

Avoiding Probate. We often counsel clients on the methods for avoiding probate, among which are revocable trusts and joint ownership.

Joint Ownership - JTWROS. As it is sometimes called in Michigan, JTWROS means that the surviving joint owner owns the property outright when other joint owners have died. At most financial institutions, this is an alternative to TOD (Transfer on Death) and POD (Payable on Death). In all three cases, JTWROS, TOD and POD, the surviving person or persons own the asset when the other named account owner dies. Many people are not aware of the alternative, or of the hazards that any particular account designation can present.

Two hazards should be considered when choosing a form of survivorship designation.

First Is Exposure to Creditors. This means, simply, that a mother who puts a son on her security account or certificate of deposit as JTWROS, may subject that account to attacks by the son’s creditors, even during the mother’s lifetime. This is a compelling reason not to use JTWROS. Personally, we have experienced clients with many sleepless nights when a son or daughter files bankruptcy. These claims can be avoided by using the TOD or POD account designations. Using either of these, the son’s creditors would have no recourse against mom’s financial assets.

Second Hazard - Litigation. The second hazard of any non-probate asset transfer has to do with litigation that can arise when other family members challenge the JTWROS, or other transfer designation, as being inconsistent with mom’s overall estate plan, which leaves property to all children equally, for example.

Michigan law, and the law of most states, creates a presumption that the surviving owner takes the property. However, that presumption can be overcome by evidence of undue influence or lack of capacity, or evidence that mom really intended that the account was a "convenience" account and that the son, as joint owner, would share the property would the siblings.

Generally, the son will usually counter that the special designation of him alone as a joint owner of the asset was in repayment for special care services rendered by the son, or an action separate from mom’s Will.
　
The recent Novosielski case in Pennsylvania is an example of a Treasury Direct account taken out in the name of Alice Novosielski and Tom Proach, her nephew, in the amount of $500,000. You can guess the result. Ms. Novosielski died and the nephew claimed that she intended that all of the Treasury Direct account belonged to him, even though that wish was inconsistent with her Will.

The Pennsylvania Courts have spent nine years trying to sort through litigation about what Ms. Novosielski’s intent was, whether there was undue influence and whether she had legal capacity to understand what she was doing. The nephew, Thomas Proach, was an agent under a Durable Power of Attorney, which creates a fiduciary relationship in itself.

What To Do In These Circumstances. In our experience, often the holder of a Durable Power of Attorney is in an excellent position both to influence the older person and to take self-benefitting actions that are generally questioned after the senior’s death. To avoid litigation, the senior’s intention should be fully documented. Is the account considered a "convenience" account for managing investments and paying bills? Or, is it intended to compensate the agent for end of life services? Did Ms. Novosielski intend that this joint account supersede the wishes expressed in her Will?

Dealing with seniors is a delicate matter, both to document and establish the competency of the senior, which is her understanding of the nature and consequences of her actions. Put another way, did she really know and understand what she was doing?

If a non-probate transfer is different from a Will, it is helpful to have a Codicil explaining intentions and reasons for differences. Absent any such explanations by the senior, self-serving joint account arrangements, or even TOD and POD designations are likely to be challenged in Court.
　
What Lessons Do We Learn From The Novosielski Case? We have outlined above some of the points that the attorneys, either for the nephew or Mrs. Novosielski, should have addressed when the joint account in question was established. If the nephew wanted to be sure that the joint account designation would hold up in Court, he should have made sure that Ms. Novosielski’s intentions were documented and that there were credible witnesses to her competency in doing so. Failure to take these precautionary steps is often a red flag that there has been fraud, lack of capacity or undue influence. In our experience, there is usually very little or no evidence, either supporting the account designation or evidence that the designation was for "convenience". Protracted litigation is the price of this lack of attention to proper details, or at a minimum, the price will be permanent disharmony and anger among the family.

Conclusion. Joint accounts, TOD’s and POD’s are important parts of estate planning. Often they are just as important as the provisions of Wills and Trusts. The same thing holds true with beneficiary designations for insurance and retirement plans. All of these methods of property transfer should be addressed in formulating an estate plan and keeping it up to date. If you, or anyone you know, is acting as a DPOA for an older family member, please let Jim Modrall, Priscilla Hirt or any of the attorneys listed below, assist in making sure that the estate plan in question avoids litigation and carries out the intention of the senior family member.
　
Donald A. Brandt, Joseph C. Fisher, Thomas R. Alward, Matthew D. Vermetten, Thomas A. Pezzetti, Jr., Susan Jill Rice, Gary D. Popovits, H. Douglas Shepherd, Laura E. Garneau, David H. Rowe and Nicole R. Graf at (231) 941-9660

BRANDT, FISHER, ALWARD & PEZZETTI, P.C.
This newsletter is provided for informational purposes and should not be acted upon without professional advice.