The account holder, the thief, his wife and her lover

The account holder, the thief, his wife and her lover

The title of a bizarre Peter Greenaway film serves well to illustrate the confusing nature of account designations.

In recent trip that our management and some of our staff made to Costa Rica, the subject of account ownership and inheritance was brought up. Members wondered what happened to their accounts if they died, who would get the money in a variety of scenarios.

It’s a good question, and I am here to talk about them.

Single-Owner Accounts

When you open your account at the Credit Union, it may just be you, alone. If you have nobody else on the account, no joint owner, and no beneficiaries (I will explain both of these designations next), and you die, there are two things that can happen.

If you die intestate, with no will, the money in your accounts will come to form part of your estate.

Your estate is a legal body, almost like a person, that represents everything you own and owe. When your estate is gathered, a person will be designated by Probate Court –a court specially designated in the legal system to manage and administer estates- to manage it, to pay off your debts, and divide your assets, money, and belongings among your descendants and family. Know that if you die without a will, the probate court from your jurisdiction (federal city, state or country, if you live outside the United States) will do things according to its laws. You should check your local jurisdiction if you wish to know how things might go in the event of your death.

If you leave a will or living trust, you will have designated an executor, and he or she will include your Credit Union accounts as part of your estate, to divide according to what you specified. If you were not specific enough, he or she will follow your local probate law.

Payable on Death Clauses

The Credit Unions allows you to set beneficiaries to your accounts so that they will inherit your funds at the time of your death. Whoever you designate will receive the funds, completely circumventing your will, even if you left one, as well as probate court.

But what if you state on your will that you want all your money to go to one or several specific people, and none of them are the beneficiaries that you listed on your Credit Union Payable on Death section? Well, that depends on the courts, if it goes to court. Legal experts tend to say that, if you don’t specify any account numbers in your will, probate judges tend to honor specific account designations. If the will uses actual account numbers, judges tend to check the date of the Payable on Death clause, and the date of the will and whichever is more recent tends to win the argument (that makes sense to me). But ultimately it’s up to the court to decide.

Joint Owners

Joint owners have, at the Credit Union, full and equal rights to the account as the member. Upon death of one of the joint account holders, the other member gains full ownership of the account and the account is renamed that way. When one member wants to remove a joint owner from the account, can they do it? Not quite. In order for the Credit Union (or any financial institution) to remove an account holder from his or her account, the joint owner must agree in writing.

Let’s examine some possible account ownership and rights scenarios

Scenario 1. Peter, our original member, has his wife Laura as joint owner. They both die in a fiery car crash (it’s my article!) and they have left no Payable on Death beneficiaries. It works exactly as it would with a single member: if they left a will, it will be administered as the estate. If they did not, their estate will be sorted by probate court.

Scenario 2. What if Peter and Laura weren’t married and each has a different will, or only one does? If one has a will, and the other has no living kin, it will be distributed according to the wishes of the one who had a will. If one had a will and one none, but he or she has living kin, chances are it will go to probate because they will not agree on the matter.

Scenario 3. Peter and Laura are married, but Peter had set his cousin Harry as beneficiary before he met Laura. Peter dies (he fell into a well trying to save a chicken from drowning and forgot he couldn’t swim himself). Laura gains full right of the account, and that’s that. If she doesn’t like Harry, she can change her Payable on death (POD) beneficiaries and Harry will be left out in the cold even if he knows his cousin meant to leave him money.

Scenario 4. Peter and Laura are married, joint account holders, and they get divorced. On their divorce decree, Laura says that she relinquishes (gives up) her rights to the account at the Credit Union and all its share certificates past, present and future. Peter dies (for once, peacefully, in his sleep; though people will talk when the account problem I describe below comes out!).

Well: Did Peter make sure that Laura informed the Credit Union that she no longer was a joint account holder on that joint account? Because if not, Laura can still present claim of ownership and the matter will have to be settled by probate court; and in this case, it is up to the judge.

Scenario 5. Peter died (after a long and happy life, leaving Laura a well-respected widow this time) a while back and Laura is the single owner of their original account. She writes her will, dividing all her belongings among her three children. Later on, as she grows older, her oldest son James helps her with the bills and around the house, so that she adds him as joint accountholder so that it’s more convenient and he can pay the bills if she’s unable. James and his two siblings are, or are not beneficiaries on the account; it doesn’t matter. Upon Laura’s death James will inherit the account, period. Will his siblings like that? Who knows?

What Laura should have done, and this is something that we suggest to members when they grow older, if they want someone to manage their money in case they get sick: that they set a Limited Power of Attorney (or POA).

Power of Attorney allows a person to grant another person the ability to act on his or her behalf, until a time that may be set as expiration on the document, or until the grantor dies; they deactivate upon the grantor’s death, no matter what. The document clearly identifies the Grantor and the Authorized Person who will act as Proxy, and must be signed in front of a Notary Public. There are two kinds of Power of Attorney, General and Limited. General grants the person appointed the right to act on all things that the grantor could authorize by himself/herself. It can be set to activate at a later time (this is called a Springing POA), such as if a person expects to lose mental/physical capacity temporary or permanently at some point in the future, or if he/she has to leave the country for a period of time and wishes for a proxy to manage his/her business.

A Limited Power of Attorney, as its name implies, allows the grantor to set limits to what his or her representative may and may not do. The options are limitless; this is the kind of POA that one can use to set someone to pay his or her bills and manage funds in an account. All financial institutions honor them by law, though they are also entitled to put them into question of they have reason to belief that a POA is not valid or correct.

Stay on top of this

As you can see, there are many ways to set your account(s). Do you remember the last time that you looked at your account designations? Are you divorced, split up, have children that are not on your account? Are there people on it that should not be there?

These are questions you should aim to answer now, not in six months. I cannot stress enough how important it is that you stay on top of your account designations, not just at the Credit Unions, but everywhere, especially on those assets that you know may become your inheritance to others: insurance, investments, and deposits.

It may not seem that important, but if you die and your accounts are not in order, it will cost your loved ones money to inherit. Money that was yours and that you could save yourself, and them, by straightening things out.

To check on your account designations at the Credit Union, drop by the Member Services Department or email here. They will be happy to help you sort your account out, and I know that the Credit Union counts with its own Notary Public, should you need one.