Setting up a joint account: Hidden pitfalls

It happens in families frequently. Your aging and ailing mom sets up a joint bank or investment account with you, just in case. In case of "what" is sometimes left vague. But you expect that, when mom passes, the money in the account will be yours; your brothers and sisters may have different expectations. The Illinois Court of Appeals addressed that issue recently, and the decision of Wieser v. Heinol is instructive to the dilemma that many family members face.

The facts of Wieser

In Wieser, the deceased had three nieces and each niece held certain assets jointly with the deceased aunt. The suit alleged that two nieces fraudulently induced their aunt to cash out $130,000 in savings bonds held jointly with the third niece. The funds were then transferred into an account that did not include their aunt. Another $245,000 was held in various joint accounts with the three nieces. However, it was the $130,000 that the two nieces used to pay their aunt's expenses until, at that time of her death, the account had been exhausted. The other accounts remained virtually untouched. The third niece contended that the other nieces had "tortuously interfered with an expected inheritance" and that she expected she would have the sole interest in the $130,000 bond when the aunt died were it not for the actions of the other two nieces.

The presumption of a lifetime gift

The court recognized that some people use a joint tenancy as a will substitute. In these situations, the person creating the account does not intend for the other person to have any present interest in the account, but that the other person would have the account, or whatever is left of it, upon the death of the creator. The problem, however, is that the property is still a valid joint tenancy with the right of survivorship and by law in Illinois creates a present gift, even if the other person never claims any part of the monies during the creator's lifetime

There is an exception to this presumption: A convenience account. This occurs when funds are held in some form of joint tenancy, but the creator only intends that the other joint tenant can, for example, write checks at the direction of the creator of the account. There is no intent for the other person to have any ownership interest in the account-present or in the future. Upon death, the funds would be an asset of the estate and distributed according to the will. The presumption, however, is in favor of a present gift and anyone who claims a convenience account has the burden of proving by clear and convincing evidence that a gift was not intended.

The result in Wieser might surprise you. The court dismissed the complaint. Since the third niece could not prove a convenience account, the bonds were a lifetime gift by the aunt and the niece's theory of "tortious interference with an expected inheritance" was simply wrong under the law; there was no expected inheritance. That is not to say, however, another legal theory might not prevail; this was just the wrong one.

This discussion should make clear that setting up joint accounts while managing the estate planning expectations of family members is complicated. Estate planning needs should be carefully thought out and addressed. The advice of an experienced estate planning attorney is essential to the creation of a plan that clearly manages your estate planning goals.