The Good Daughter, The Bad Son, And The Ugly Results
Sometimes the rules on joint tenancy, fiduciary relationships, Dead-Man’s Act, hearsay rule, and presumptions give results that are just wrong. The following illustrations are modified from two cases I was involved in. [Editorial note: It is a coincidence that the women in both situations were “good” and the men were “bad.” No political or sexist statement is intended.]
The Good Daughter
Jacob and Ruth had two children, Judy and David. After Ruth died, Judy cared for Jacob, who had no mental problems but was confined to a wheelchair, and assisted him in routine ways in handling his financial affairs. Jacob’s will divided his Probate Estate equally between Judy and David and named Judy as Executor. Jacob also executed a Property Power of Attorney naming Judy as agent. After Ruth died but before he executed the Power of Attorney, Jacob set up two joint bank accounts with Judy intending that she receive those accounts upon his death. His intent was never put in writing.
After Jacob died, Judy was appointed Executor. The Probate Estate was approximately $200,000.00, and the joint bank accounts totalled approximately $140,000.00. David hired a “Rambo” litigation firm and instituted Citation proceedings against Judy to recover all of the joint funds for the Estate with the additional goal of beating her into submission. David claimed that Judy stood in a fiduciary relationship with Jacob even before the execution of the power of attorney and had benefited from that relationship to David’s detriment. Judy hired a skilled litigator to neutralize David’s lawyers, but the attorneys on both sides of the proceedings spent great amounts of time and charged the parties thousands of dollars in fees.
The case was ultimately settled. Between the settlement she received and the fees she paid, Judy ended up with only $40,000.00 out of the $140,000.00. That result was absolutely contrary to Jacob’s intent, but had the litigation continued, Judy could have ended up with nothing left from the joint accounts or with actually having to pay her attorneys and David combined an amount in excess of all of the joint funds.
The Bad Son
John and Mary had seven children, three sons and four daughters. During their marriage, Mary was hospitalized at least two times for mental illness and could not be “trusted” to handle money responsibly. John put all of his liquid assets into joint tenancy with one of his sons, William (the other two sons resided out of state). Mary did have a limited amount of her own money and put that into joint tenancy with Eileen, one of the parties’ daughters. Neither John nor Mary had a will.
John died first. The marital home was in joint tenancy and passed to Mary. The rest of John’s assets passed by operation of law to William. William held the money separate and did not take any of it for his own use while Mary was alive. However, he also kept the money entirely away from Mary and paid nothing to any of his siblings. Almost two years after John died, Mary consulted an attorney and was planning to challenge William’s ownership of the joint assets when she died. Eileen was appointed Administrator of Mary’s Estate and promptly transferred “her” joint accounts into Mary’s Estate, since they were admittedly Mary’s funds. Eileen then brought Citation proceedings against William on the basis that the joint accounts between John and William were part of a “family plan,” were joint for convenience only, were to be held or used only for Mary’s benefit so long as she lived, and were then to be distributed as part of Mary’s Estate.
No fiduciary relationship ever existed between John and William. John “managed” his own money until his death. No fiduciary relationship ever existed between Mary and William. Eileen, not William, assisted Mary with her financial affairs. John and Mary did not discuss their financial affairs with their children, except that John on one occasion did discuss the joint accounts with William. That conversation was accidently overheard by two of the other children. However, their testimony was barred by the hearsay rule, and in the end there was insufficient evidence to overcome the presumption that the accounts were intended to be gifts by John to William. Out of the entire Estates of John and Mary, William ultimately received approximately $100,000.00 from the joint accounts with John plus a share of Mary’s Estate. Mary’s Estate was divided into seven shares, one for each child, and her net estate totaled only $42,000.00. Each share was thus $6,000.00. John and Mary never intended to favor one child over the others. Yet, William ultimately received a total of $106,000.00 while each of his brothers and sisters received only $6,000.00!
Too may people still believe the myth that joint tenancies can successfully avoid Probate. Add to that myth the increased use of powers of attorney, and the result often is not only Probate but contested Probate with substantial fees and costs. We should tell everyone, especially our clients, about these problems and how to avoid them.
In earlier articles I discussed measures we as attorneys can and should take to help avoid these situations. The first step in planning any client’s estate should be to review the client’s assets and how they are held. Only then can we anticipate problems such as these which may arise and plan to avoid them. It is bad enough when a decedent’s plan gets altered. It is far worse when the result is exactly the opposite as in t hese two cases. These are only two examples of what can go wrong. It is our job to see that they go right.
© 1999 by Cary A. Lind, all rights reserved