How do I set up bank accounts in a safe fashion?

Dear Mr. Premack: I am recently widowed and have just finished probating my husband’s Will. I understand that I am the owner of all our bank accounts now. I want to keep the accounts set up, so it is clear I am the only owner. I fear asking my son to be a co-signer as he has a poor driving record and if he causes an accident, it may put my accounts at risk. What can you suggest to protect my accounts while still making it easier for him if I become disabled or die? – A.O.

Texas law allows you to set up your bank accounts in a variety of ways. Not all banks offer all of the legal options, so you may have to shop around to find the right bank for you.

Your first option is to keep your accounts as “single party” accounts. If you select this type of account, then while you are alive you are the only person who can access the funds in the account. You own the account. When you die, the bank will hold the account until your Will is probated and your Executor takes control over the account.

Your second option is to have that same “single party” account but to add a “pay on death (POD)” designation. Again, you remain the sole owner and the only person with authority to access the account while you are alive. But upon your death, the person you named on POD designation becomes the owner of the account. The POD arrangement supersedes anything that your Will might say about the account.

Let that point sink in for a moment. Your Will can be legally contradicted by a POD designation, and in the conflict, the POD designation is going to take priority. If there is a conflict between your Will and your bank account arrangement, the Will loses. That is why it is vital for you to properly coordinate what your Will says with what your account designations say.

Single party accounts can be made accessible in a controlled fashion by appointment of an agent in a Durable Power of Attorney. Your agent can be authorized to transact banking business on your behalf, but never becomes a co-signor on your account and always acts as your fiduciary. Any liabilities of the agent should not spill over to affect your single party accounts.

Your third option is to utilize a “convenience account.” This is a creation of Texas statutory law, and some banks do not offer it as an option. A convenience account is set up in your name, but gives one or more other cosigners access to the account. The cosigner can withdraw funds, but legally does not own the funds. If you are disabled, the cosigner can pay your bills from the account. The funds in the account are your property. If a cosigner puts money in the account, you are considered to be the owner of those funds.

You can “lock out” a cosigner by informing the bank, in writing, that access is terminated. The bank can impose its own procedures on this option, so be sure to discuss it with them before trying to lock out your cosigner. A cosigner does not have a right of survivorship to the account when you die, and the bank will hold the account until your Will is probated.

Your fourth option is to establish a living trust, and convey your accounts to the trust. You can name yourself as the sole manager (trustee) with sole authority to control the accounts.

You name an alternate trustee to control the accounts if you become disabled or you die. That successor trustee is your fiduciary, and any liabilities of the trustee should not spill over to affect your trust accounts. As an added bonus, the trust can control who receives the accounts when you die, and there is no hold placed by the bank pending probate of your Will.

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Paul Premack is a Certified Elder Law Attorney practicing estate planning and probate law in San Antonio.

Original Publication: San Antonio Express News, May 7, 2012

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