A Bad Idea

I got a call from a client the other day. His mother had died, and he had a lot of questions.

His mother and father had divorced years ago. She had remarried, and she and her new husband had a loving relationship. Not knowing who might die first and wanting to be fair, they had verbally agreed that everything would pass to the survivor on the death of the first of them to die, and on the death of the second, everything would be split 50/50, with half going to her son and half going to his children. They didn’t put that agreement in writing, and everything was owned jointly. They did both execute wills that included those provisions, but that was it. And therein lies the problem.

When a married couple owns property jointly, on the death of the first of them to die, everything passes to the surviving spouse. There is no need to probate anything since there is nothing to probate. If you’re talking about real estate, you do need to file an affidavit of death to clean up the title. With regard to financial assets, you probably need a death certificate to show to the financial institution. But no probate.

And when the assets pass to the surviving spouse, the surviving spouse is free to do whatever they want with them. My client said that his stepfather was talking about putting the accounts in joint names with his son. The idea was that he wanted his son to be able to pay his bills. But joint ownership between non-spouses can create problems. In the case of bank accounts (they have special rules that apply to them), his son would be able to use that money to pay his bills. But his son would also be free to drain that account. Or if he got sued and lost, the other party could attach those funds to satisfy his or her judgment. In the case of a brokerage account, both joint owners would need to jointly withdraw funds, so he would be no better off than if the account was still in his name. And then on the death of the step-father, all of the assets would pass outright to the surviving son. There would be no probate, and the will that split things 50/50 would prove to be a useless piece of paper.

The best thing that my client’s mom could have done would have been to enter into a pre-or post-nuptial agreement. She and her husband could have agreed to split the assets in writing just like they had verbally agreed to do.

But now, my client was in a sticky situation. Although he had a good relationship with his stepfather, his stepfather was free to do whatever he wanted to do with the assets. I told him that his stepfather could put the assets into a trust, and that would avoid probate, allow for his son to take care of him if he became ill, and incorporate the testamentary disposition play he had agreed to with his wife. If he didn’t want to do a trust, he could keep his will and execute a power-of-attorney allowing his son to pay his bills, but not put everything in joint names. There are ways to salvage the situation to achieve what the spouses had agreed to, but it will take some cooperation.