In recent trip that our management and some of our staff made to Costa Rica, members there raised the subject of account designations, ownership and inheritance. They wondered what happened to their accounts if they died, and who would get ownership.

It's a good question, and I am here to talk about possible scenarios.

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 account will come to form part of your estate.

Your estate and your will

Your estate is a legal body, almost like a person, that represents everything you own and owe. When you die your estate will be born, and Probate Court –a court that manages and administers estates and will issues- will designate a person to manage it; that person will pay off your debts, and divide your assets, money, and belongings among your descendants and family. 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. He or she will include your Credit Union accounts as part of your estate, to divide according to what you specified. If you weren't specific, he or she will follow your local probate law.

Payable on Death (POD) 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. Your Pay on Death designations circumvent your will and probate court.

But let's say that you specify on your will that you want all your money to go to one or several specific people. But, when you die, none of those people on your will are the POD beneficiaries on your Credit Union card. A court would have to decide on this, should either side demand it. Legal experts say that, if you don't specify any account numbers in your will, probate judges usually honor specific account designations. If the will uses actual account numbers, judges will check the date of the Payable on Death clause, and the date of the will. Whichever is more recent usually wins the argument (that makes sense). However, it really comes down to a judge's decision.

Joint Owners

Joint owners have, at OAS FCU, full and equal rights to the account and the benefits of membership. Upon the death of one of the owners, the other member gains full, individual ownership of the account. 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, that person 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 (both have equal rights to the account). They die in a fiery car crash (it's my article!), and have left no Payable on Death beneficiaries. It works exactly as it would with a single member: if they left a will, the estate will administer the funds. If they didn't, 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, the estate of the one who had a will will distribute the funds according to that will. If one had a will and the other didn't, but he or she has living kin? Chances are it will go to probate, because it's likely that they won't agree on the matter.

Scenario 3

Peter and Laura are married, and Peter has his cousin Harry as beneficiary, since before he met Laura; when they move in together, he adds her to his account as joint owner. Peter dies (he fell into a well trying to save a chicken from drowning and forgot he couldn't swim). Laura gains full right of the account, and that's that. If she doesn't like Harry, she can change her POD beneficiaries; too bad for Harry.

Scenario 4

Peter and Laura are married, joint account holders, and they separate. On their separation agreement, Laura says that she gives up her rights to the account at the Credit Union. Peter dies (for once, peacefully, in his sleep; though people will talk when the account problem I describe below comes out!).

Did Peter make sure that Laura informed the Credit Union that she no longer was a owner of that joint account? Because if not, Laura can still claim of ownership, and the matter might have to be settled in court; and in this case, it'd be up to the judge.

Scenario 5

Peter died a while back (after a long and happy life, leaving Laura a well-respected widow this time), and Laura is the single owner of the 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 around the house. She adds him as joint account holder; it's more convenient, this way he can pay the bills if she's unable. James and his two siblings are, or aren't beneficiaries on the account; it doesn't matter. Upon Laura's death, James inherits the account.

What could have Laura done instead? This is something that we suggest to members when they grow older. If you want someone to manage your money in the case you get sick: set a Limited Power of Attorney (or POA).

A Power of Attorney

It allows a person to grant another person the ability to act on his or her behalf. It's valid until the time set as expiration on the document, or until the grantor dies. It becomes invalid 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 Power of Attorney grants the person appointed the right to act on all things that the grantor could authorize by himself/herself. They grantor may request that the General POA becomes active at a later time (this is called a Springing POA). They're useful if a person expects to lose mental/physical capacity temporary or permanently at some point in the future, or if he/she goes abroad for a period of time and needs a proxy to manage his/her business.