Reed: Can multi-party accounts be tapped for estate debts, taxes and expenses?
By Sandra W. Reed
Percy B. left all the cash assets in his estate to his nieces and nephews through one joint bank account with rights of survivorship (ROS) and two pay-on-death (POD) accounts. These multi-party accounts are non-probate accounts, transferred through contract with the banking institution. They do not go into Percy’s estate. Percy’s will left the assets in his estate to his three children.
Percy’s daughter, Ashley, as executrix of his estate, determined that the assets in the estate were not sufficient to cover her father’s debts, taxes and administration expenses of the estate. That meant she and her siblings will inherit nothing from their father.
Are she and her two brothers, as beneficiaries, liable for these debts, taxes and expenses of the estate? Can the funds that the nieces and nephews received, as beneficiaries of the non-probate estate assets, be tapped to pay the remainder of the expenses?
Are beneficiaries of the estate liable personally for debts, taxes and expenses of the estate?
Beneficiaries cannot be required to pay the debts, taxes and expenses of the estate from their personal funds. Beneficiaries who inherit property that is mortgaged or that is pledged as collateral do inherit that property subject to its debt. That was not the case with Ashley and her siblings.
Are ROS and POD accounts subject to estate debts, taxes and expenses?
As of Sept. 1, 2017, multi-party accounts are liable for their share of Federal estate taxes, if other estate assets are insufficient to pay debts, other taxes and administration expenses. The funds from the accounts the nieces and nephews received through ROS and POD accounts can be tapped to pay any outstanding taxes, debts and expenses of Percy’s estate.
How can executors/executrixes reach multi-party account assets, if needed?
Of course, the nieces and nephews may agree to contribute the amounts that are needed to pay the debts, taxes and expenses of the estate. If they do not agree, the executor can bring an action against them to retrieve the funds. The action must be filed no later than two years following the death of the decedent.
Generally, a bank is protected from liability if it distributes assets from these accounts in accordance with the documents filed with the bank establishing the accounts, unless the bank has notice that the accounts are disputed in some way. The executor should file an application for probate as quickly as possible and immediately give notice to the banks or other financial institutions involved that some portion, if not all, of the funds from the account may be needed for estate debts, taxes and administration expenses. This may halt the transfer of the funds to the beneficiaries.
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. She can be contacted by landline (254)797-0211, by cell (817) 946-2809 or email at firstname.lastname@example.org.