Jud J. was recently diagnosed with Parkinson’s. He wants to make certain his estate planning is in order before the disease progresses. His family with his wife of twenty years is blended. Both he and Jan have grown children by previous marriages. His children don’t get along with their siblings or their stepbrothers and stepsisters. Jud has promised two other children he will structure his estate to even out a discrepancy created when Jud provided his son, Jason, with money to start his business so the children will have benefited equally.
Jud and his wife have maintained separate bank accounts since their marriage. Jud’s accounts had set up his account prior to his marriage to Jan with pay-on-death (POD) designations in favor of his three children. He is now contemplating revising the POD designations to substitute Jan’s name for the children’s. In that way, these accounts will pass directly to Jan outside of probate.
Both Jud and Jan brought income-producing assets into the marriage. They have maintained these properties as separate property throughout their marriage. They have each used the accumulated income from these properties to purchase stock. The income from Jud’s property goes into a brokerage account in his name at Charles Schwab. That from Jan’s property goes into a brokerage account at Edward Jones.
Jud’s will, which he does not intend to change, devises the rest of his estate to his three children by the previous marriage l. Jan plans to leave her separate property to her children by the previous marriage.
Jud is under the mistaken belief that the Schwab account, which is substantial in value, will pass to his children under his will. However, in Texas, income from separate property becomes community property. The Schwab account is community property, since the stock was purchased with community property. That means that only half of it will pass to Jud’s children through his will. The remainder of the account belongs to Jan.
Jud’s situation contains multiple problems that create potential for challenges to his estate plan. As structured, the plan itself will fail to implement his intentions. What should he do to make certain his plan does what he wants and won’t be undone through court contests after he dies?
Assuring the bank accounts designations can’t be effectively challenged
There are three primary challenges to POD bank accounts: (1) the account agreement did not effectively establish a POD account; (2) the person establishing the account lacked mental capacity at the time of the designation; and (3) the person establishing the account was unduly influenced in naming the beneficiary of the account.
Making certain that account agreement establishes a POD account
To insure that the account agreement effectively establishes a POD account, Jud should read the agreement carefully and make certain he is completing the forms correctly to establish a POD account and not some other form of account. Typically, bank agreements provide for multiple choices with the applicant’s checking or initialing a preferred choice.
In most cases, banks have had internal or contract legal counsel review their forms to make sure they conform o the current law requirements for establishing each type of account. If the bank has done so, Jud can assume that the wording in the agreement will effectively create the account described. However, if Jud has any concerns that adequate screening of the forms has not been done, he should have an attorney knowledgeable in elder law or probate law to review the account agreement.
Making certain capacity can be proved
Jud should make an appointment with his primary physician and/or the physician treating him for Parkinson’s to discuss his current mental capacity in connection with his intention to establish the POD accounts. According to research, most people with Parkinson’s will experience some mild cognitive impairment. They may have some problems with concentration and follow-through. They may have trouble with recall at times. However, in the early stages, this may not prevent them from working or performing daily tasks.
If Jud is experiencing low-level impairment, he should still have the mental capacity to establish a contract, which is the mental capacity necessary to set up the POD accounts. He should ask his doctor to make a note in his medical records that they have discussed his intention regarding the accounts and that, in the opinion of the doctor, Jud has capacity to make the decisions regarding the accounts and to carry them out.
Making certain that facts indicate no undue influence
Jud can take steps to be certain that the facts surrounding his establishment of the account agreements naming Jan as POD beneficiary forestall a claim that he was unduly influenced in her favor. Jud discuss with his banker, his attorney and a trusted friend his plans prior to setting up the accounts. During these conferences, he can mention that his and Jan’s long-term marriage has prompted him to change the beneficiary designations. Jan should not be present at these meetings.
Jud should also refrain from mentioning to Jan his intentions. Additionally, Jan should not accompany him to the bank when he completes the account agreements establishing the accounts. Her presence at the time of establishment could be interpreted as being unduly influential.
Assuring Jud’s children get the amounts Jud intended
If Jud wants to equalize his gifts to his children and a sum equal to one-half of the Schwab account to go to them, he must adjust his estate plan. He could establish an account in the amount he gave to Jason with a POD designation in the name of the other two children. Giving an amount equal to one-half the Schwab account is more problematic because that figure will continue to change each month. He should discuss approaches that might be available to him with an attorney knowledgeable in the area.
-- Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth, Texas. She lives and practices in beautiful Somervell County, near Chalk Mountain.