This column first appeared in the San Antonio Express News and other Texas Hearst Newspapers on September 7, 2018.
When a person dies, there are four ways that someone else becomes the owner of their assets. First and most traditional is for the assets to pass to the devisees named in the Will. Typically, the Will needs to be probated, a courtroom process which can be very streamlined under Texas law. Second and all too often seen is for the assets to pass under the laws of intestacy. This happens when the decedent made no plan, signed no documents, and state law must be used to identify the proper legal heirs via a more complex proceeding in court.
Third is for the assets to be held in trust, under the terms of a Living Trust (often called a Revocable Grantor Trust). Living Trusts are effective to avoid probate court, to pass assets to personally selected individuals, and to have deep options for contingency planning.
Fourth is to utilize Right of Survivorship and Pay on Death beneficiary arrangements (“ROS/POD”). These are contractual and legal agreements that tell the custodian of an account who will own the account if a joint owner dies. When ROS/POD is used consciously and in coordination with the existing estate plan it can help simplify administration. But, like in your situation, when ROS/POD contradict the estate plan, there can be trouble.
Your mother’s bank – like many banks – did not explain or make clear that ROS/POD overrides the depositor’s estate plan, even superseding the terms of a Will or a Trust. Banks may not disclose or explain the ROS/POD’s effect because they do not care about a depositor’s estate planning goals. They care about having a direct path to follow when they find out the depositor has died, even if it contradicts the depositor’s estate plan.
Due to the ROS/POD contract, your mother’s bank insists on paying the funds to you instead of to her Executor to be distributed via her Will. What is your remedy? In part, it depends on how much money is in question.
If the amount is small, you can accept the funds. Then you can turn around and gift the funds to the same people named in the Will, so they get what your mother intended. This works best if the amount is less than $15,000 per recipient, which completely avoids entanglement with the IRS and with gift taxes (because you own the funds, the transfer is from you not your mother).
If the amount is larger, consider a legal “Disclaimer”. Work with your lawyer to properly structure and distribute the Disclaimer document. To avoid tax issues, it must be done within 9 months of the date of death, and you must have taken no control or ownership of the funds. The Disclaimer treats the funds as though you had died before your mother, leaving her as the sole account holder. It thus voids the survivorship right, allowing the Executor to claim the funds and distribute them pursuant to the Will.
Paul Premack is a Certified Elder Law Attorney with offices in San Antonio and Seattle, handling Wills and Trusts, Probate, and Business Entity issues. View past legal columns or submit free questions on legal issues via www.TexasEstateandProbate.com or www.Premack.com.