Dear Mr. Premack: My brother has just inherited a variety of investments (all in a brokerage account) from our uncle. The brokerage account was set up in my brother’s name, and he told me that he felt guilty that our uncle did not leave part of the account to me. He checked with his accountant about gifting part of the account to me, but decided instead to list me on the account as a joint tenant with right of survivorship. My brother’s wife is very angry, and said she is sole devisee and executor under his will and she will claim the brokerage account when he dies. Can my sister-in-law get the brokerage account, or will it come to me? – A.V.
According to Texas law, when an individual receives an inheritance – as did your brother from your uncle – the assets are the separate property of the heir. Thus, the brokerage account and all of the investments in it are your brother’s sole and separate property. His wife has no interest in and has no control over his separate property brokerage account.
Your brother, as sole owner of the account, is well within his legal rights to gift away any part of those assets or to change the account agreement in any manner. Adding you to the account with right of survivorship indicates his legally binding intention that you will become owner of the account if he predeceases you. Conversely, if you predecease him then your rights end and the account should pass under the terms of his Will.
In a conflict between the terms of a person’s Last Will versus the terms of an account agreement, the account agreement can dominate so long as it is prepared and executed according to Texas law. There is a recent appellate case which is a good illustration (Mims-Brown v. Brown, decided in March 2014 by the Court of Appeals in Dallas). In that case, Carl Brown left some land to his son Wayne Brown, with the requirement that half of the income would be paid to Carl’s wife Bessie for her lifetime. A few years later, Wayne sold the land and put the money into a brokerage account.
Wayne asked his step-mother Bessie to be joint tenant with right of survivorship on the account. They both signed proper contracts with the brokerage. When Wayne died a few years later, Bessie claimed ownership of the account. Wayne’s widow, Rhonda, claimed the money should pass to her and the brokerage account did not have proper legal wording to create a right of survivorship for Bessie.
The trial court ruled that Bessie would receive the account. Rhonda appealed. The appeals court analyzed both case law and statutory law, and determined that a written agreement, signed by the parties, which expresses an intent for the asset to survive to the other account holder is valid. The law does not require any specific formula to be recited in the contract, just a clear intent that the assets should belong to the survivor if either party should die. Bessie was allowed to keep the brokerage account despite Rhonda’s claim.
In your situation, you should also be allowed to keep the account when if your brother predeceases you. You should get a copy of the brokerage account’s signature card and any accompanying documents from the brokerage. Consult with your own estate planning attorney to obtain an opinion whether the existing documents have adequate terms and are properly signed by the correct parties. If all is well, your claim to the account overrides whatever your brother said in his Will.
One caveat: so long as your brother is alive, any interest earned or dividends paid on the brokerage account are community property. Half of the community property income belongs to his wife. He should be careful to segregate those earnings into a separate account made payable to his wife. That way, her interest in the earnings is not left commingled with the share you receive if he predeceases you, and you and she do not have to pit two sets of accountants against each other to analyze and segregate the account. Your brother could work with his lawyer to seek his wife’s voluntary waiver of the income earned by this separate property fund.
Paul Premack is a Certified Elder Law Attorney and a Five Star Wealth Manager (Texas Monthly Magazine 2009-2013) practicing estate planning and probate law in San Antonio.
Original Publication: San Antonio Express News, May 12, 2014