Dear Quentin,
I just found out that my parents (who are in their mid 80s) have named my sister as their successor trustee, and executor of their estate and wills. They have also put her name on all their financial accounts “in case something happens to us.”
I have no reason to suspect my sister of any nefarious motives, but having her name as joint owner on their accounts seems potentially problematic to me in case of their passing. What are the pros and cons of this arrangement?
Their estate is probably worth about $4 million. We have five other siblings who are currently unaware of this arrangement. Can you provide any resources or articles I could show my parents regarding better ways to accomplish their goal of having someone in charge of their finances?
Concerned Son
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Dear Son,
People often don’t do anything nefarious, until they have the opportunity to do so and/or run into financial difficulty of their own. That may not be the case with your sister, of course, but your parents should absolutely know the meaning of making one of their children a co-owner on their bank accounts, if their intention is to merely have your sister assist with bills.
Is she a co-owner of this account, or is she a co-signer? If it’s the former, your sister is a joint owner and can spend the money as she wishes. She would likely be liable for debts on that account after your parents’ death. If it’s the latter, your sister has the right to sign checks on your parents’ behalf. To complicate matters, not all banks have the same definitions for “co-owner” and “co-signer.”
Many people don’t understand the difference between being a co-signer and a co-owner. There are many cases of children listed as co-owners (rather than authorized signers) on those accounts who have emptied their parents’ bank account before and after they died. Sometimes, they did not keep enough (or any) receipts, and have been wrongly accused of emptying a parent’s account.
“ Many people don’t understand the difference between being a co-signer and a co-owner. ”
In the letters I have received on this issue,the damage was often already done, typically caused by a combination of the three “Gs” — grief, gripes and greed — when long-simmering sibling rivalries boil over. People do things that they may not otherwise do if their parents were there to witness it. You are correct to ensure your parents’ action is in accordance with their wishes.
There are other ”what ifs”: What if your sister dies first? The account would likely become part of her estate too, with a share to be distributed to her children, which could then involve paying a state inheritance tax. Your parents’ accounts could also be “paid on death” or “transferred on death,” avoiding the public and often time-consuming probate process. Read more here.
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