Sign In
  • Wisconsin Lawyer
    May 14, 2021

    Ripe for Abuse: How Joint Accounts Thwart Estate Plans

    Peter J. Walsh & Aaron J. Foley

    Joint accounts at financial institutions might become vehicles for asset transfers at death in ways that account creators did not intend. Learn how to determine whether a joint account holder has interfered with a decedent’s estate planning goals by inappropriate use of the joint account.
    concerned father

    Families often use joint accounts to make funds available to a family member to pay bills or to transfer assets upon death without probate. A joint account can be established at low cost, without the assistance of a lawyer, and quickly, through one trip to a bank or other financial institution. Wisconsin law vests joint account holders (hereinafter “holders” or “holder” depending on the context) with unfettered access to funds in the account during their lifetimes and provides for the transfer of the balance without probate to the surviving joint account holder(s) at the death of a holder. Unfortunately, the ease with which they can be created and the extraordinary legal rights given to the holders makes joint accounts ripe for abuse.

    This article illustrates how a joint account can be abused in a family context and examines whether a fiduciary duty may be imposed on a holder to remedy such abuse. A theory of undue influence in the creation or funding of a joint account may also play a role in litigation regarding joint accounts, but undue influence is not addressed in this article.

    What Are Joint Accounts?

    Joint accounts refer to financial institution or investment accounts established with two or more account holders who, according to the account forms, have the right of survivorship. Joint accounts can be checking, savings, or investment accounts. The rights of the holders to a joint account, including the right of survivorship, typically are detailed in boilerplate language on an account application.

    Important Legal Presumptions. Wisconsin imposes two very important legal presumptions regarding the ownership of funds in a joint account.

    1) Ownership and control of funds within the account while all holders are alive: Wis. Stat. section 705.03(1) provides that the funds within a joint account belong to all the account holders “without regard to the proportion of their respective contributions to” the account, and it generally eliminates the need of any one holder to account to any other person, even another holder, for his or her use of funds from a joint account. Essentially, in Wisconsin, one holder can use any and all of the funds in a joint account, regardless of how much the holder contributed to the account, and none of the other holders can compel him or her to account for such use. This legal presumption shields a holder from oversight “[u]nless there is clear and convincing evidence of a different intent.”1

    Peter J. WalshPeter J. Walsh, DePaul 1998, is a partner with von Briesen & Roper SC in its Waukesha office. He focuses on estate planning, elder law, and inheritance litigation. Learn more about our contributor.

    Aaron J. FoleyAaron J. Foley, Marquette 2007, practices with von Briesen & Roper SC in its Milwaukee office. He focuses on estate planning, probate and trust administration, business law, real estate, and adult guardianship. Learn more about our contributor.

    2) How funds in the joint account pass upon death of a holder: Wis. Stat. section 705.04(1) provides that upon the death of a holder, the balance of a joint account belongs to surviving holders and not the estate of the deceased holder. Thus, the funds in the account pass without probate to the surviving holders, regardless of the provisions of the deceased holder’s will or trust. As such, funds held in joint accounts often pass in contravention of the deceased holder’s testamentary desires as set forth in his or her will or trust. Again, this presumption holds “unless there is clear and convincing evidence of a different intention at the time the account is created.”2

    These two statutes abrogate the common-law fiduciary duties associated with joint ownership. Under the common law, entrusting another person with funds normally creates an agency with fiduciary duties.3 For joint accounts, however, unless there is clear and convincing evidence of a contrary intent, the holders of a joint account have no duty to act in good faith or with loyalty to each other with respect the funds in the account.

    The legal implications of these statutes are not broadly understood by joint account holders. Estate planning clients often express surprise when they learn that another holder can use all funds in the joint account without explanation and that the funds pass to the surviving holder upon the client’s death regardless of the provisions of the client’s will. This raises the issue of how many people go to their graves without knowing that the contents of a joint account will pass to the other holders instead of as provided by their will. Once informed of these presumptions, many clients indicate that they trust the adult child (or other holder) to share the balance with the child’s siblings (or other intended recipients). This trust too often proves to be misplaced.

    The ease with which a joint account can be created greatly increases the danger of this lack of understanding. While creation of a will or a change to a will normally involves a lawyer, who undertakes a fiduciary duty to represent a client’s interests, a joint account can be created with the assistance of a financial institution employee during a single trip to the financial institution. Because of the relative lack of formality associated with joint accounts, they have become a mechanism of choice for elder abuse and other types of financial abuse.

    How a Joint Account May Thwart an Estate Plan

    The following example illustrates how a joint account can be abused to thwart a parent’s estate plan.

    Dorothy, an elderly woman, passes away and is survived by three adult children: John, Sally, and Jane. Dorothy named all three children as equal beneficiaries in her will and of her individual retirement account (IRA). Dorothy made these designations more than 10 years ago, shortly after her husband passed away. Before his death, Dorothy’s husband was her primary beneficiary and the children in equal shares were her contingent beneficiaries.

    During the last three years of her life, Dorothy resided in an assisted-living facility. Dorothy’s monthly income from Social Security and her pension nearly covered the costs of the assisted-living facility. Shortly after Dorothy moved into the assisted-living facility, her house was sold and Dorothy received $150,000 in net proceeds. Although Dorothy exhibited some cognitive decline, she remained competent to make health-care decisions, so her health-care power of attorney was not activated.

    John and Sally live out of state, and Jane served as Dorothy’s main helper. John and Sally understood that, during the last few years of Dorothy’s life, Jane handled Dorothy’s financial affairs, including paying her bills, preparing her tax returns, and managing the sale of Dorothy’s home. They also understood that at some point, Dorothy executed a financial power of attorney and designated Jane as her agent.

    When the children meet after Dorothy’s death, John and Sally are surprised to learn that the estate includes only a small balance in a savings account and the IRA. When they ask Jane what happened to the sales proceeds from the house and the funds withdrawn from Dorothy’s IRA, Jane responds defensively that most of it was spent on Dorothy’s care and whatever is left passes to Jane through a joint checking account. Jane explains that Dorothy wanted Jane to have the funds left in the joint account because Jane took care of her. 

    John and Sally view Jane’s statements incredulously; according to their calculations, the balance of Dorothy’s estate should exceed $100,000. John and Sally contact Dorothy’s estate planning attorney to request information about the joint account. The estate planning attorney denies knowledge of the creation of a joint account. It appears that the account was established without assistance of counsel.

    John and Sally consult a lawyer as to whether they have a right to a portion of the joint account. The lawyer informs them that the law presumes that the funds in the joint account belong to Jane and that they face a high legal burden to rebut this presumption. Shocked to learn this, they hire the lawyer to lay out potential theories to enforce what they believe were Dorothy’s actual wishes: for the children to receive equal shares of her assets.

    Fiduciary Duty Versus Legal Presumptions

    The lawyer informs John and Sally that they may be able secure a right to the joint account by establishing the existence of a fiduciary relationship between Jane and Dorothy that rebuts the presumption of a donative intent associated with the joint account. A fiduciary relationship may be established through the existence of a power of attorney or if the circumstances surrounding the creation and funding of the joint account demonstrate that it constituted a “convenience account.”

    The lawyer suggests reviewing the terms of the financial power of attorney to determine which powers were vested in Jane, whether Dorothy executed the power of attorney before or after the creation of the joint account, and whether Jane used the power of attorney to create or fund the joint account. The terms and timing of the power of attorney may rebut the presumption of Dorothy’s donative intent in the creation and funding of the joint account.

    concerned elderly couple

    Authorities Granted by Financial Power of Attorney

    The terms of the power of attorney should be reviewed to determine whether they expressly authorized Jane to create a joint account, to make gifts of Dorothy’s assets to herself, or to modify Dorothy’s estate plan or to enter into any similar form of self-dealing. If such authorities are not expressly included in a power of attorney, they do not exist.4 Without express authority, Jane’s use of the power of attorney to create or fund the joint account could constitute a breach of her duties to Dorothy.

    As Dorothy’s financial agent, Jane was subject to certain legal duties the breach of which could expose her to liability. For example, an agent under a financial power of attorney has the duty to “[a]ct in accordance with the principal’s reasonable expectations to the extent actually known by the agent”;5 “[a]ct only within the scope of authority granted in the power of attorney”;6 and “[a]ttempt to preserve the principal’s estate plan, to the extent actually known by the agent, if preserving the plan is consistent with the principal’s best interest.”7 These duties would have been breached if Jane used the power of attorney to undermine Dorothy’s testamentary desire to treat her children equally.

    Accordingly, the terms of the power of attorney and the duties of an agent under the power of attorney should be compared to Jane’s actual conduct. Did Jane use the power of attorney to create the joint account, or as discussed further below, did the execution of the power of attorney come before or after the creation of the joint account? Once the account was established, moreover, did Jane use the power of attorney to deposit or transfer funds into the joint account? Specifically, did Jane rely on the power of attorney to deposit proceeds from the sale of Dorothy’s house into the joint account? Alternatively, did Jane allow funds to build up in the joint account while spending down Dorothy’s other funds?

    Unfortunately, the ease with which they can be created and the extraordinary legal rights given to the holders makes joint accounts ripe for abuse.

    If the circumstances indicate that Jane relied on the power of attorney to establish the joint account or to deposit funds into the joint, Jane breached her fiduciary duty to Dorothy by doing so unless the terms of the power of attorney expressly authorized her to take such actions. If Jane breached her fiduciary duties to Dorothy, the presumption of Dorothy’s donative intent should be negated, which would cause Jane to be liable to John and Sally.

    Importantly, in this context, the law does not permit Jane to exculpate herself with testimony of Dorothy’s donative intent.8 Jane cannot simply claim that Dorothy directed her to open the joint account or to deposit funds into the joint account. Jane’s statement that she received the balance of the joint account because Dorothy wanted her to have it should not excuse any breach of Jane’s fiduciary duty in facilitating it.

    Timing of Imposition of Duties

    The extent to which Jane’s duties as power of attorney trump the donative intent associated with a joint account may depend on which was created first, the financial power of attorney or the joint account. The Wisconsin Supreme Court, in Russ ex rel. Schwartz v. Russ,9 examined the dueling presumptions associated with joint accounts and powers of attorney and how timing may affect their legal implications as follows:

    “We hold that a joint checking account established under Wis. Stat. § 705.03 prior to the execution of a POA creates a presumption of donative intent, and that the transfer of funds from such a joint account by an agent acting under a POA, but for the agent’s own use, creates a presumption of fraud, unless the POA explicitly authorizes self-dealing. We further hold that when, as in the present case, these two conflicting and inconsistent presumptions coincide, the circuit court is free to make a determination based on the facts and the credibility of the witnesses, as the circuit court did here.”

    According to this analysis, the dueling presumptions can cancel each other out and thereby require a court, in this scenario, to consider other evidence to determine Dorothy’s true intent.

    In formulating this rule, the court in Russ adopted an approach taken by the Illinois Appellate Court In re Estate of Harms.10 The Illinois approach provides a more detailed framework for resolving the conflicting presumptions between joint accounts and powers of attorney. According to this approach, if the joint account is established before the execution of the power of attorney and the contributions to the joint account after the execution of the power of attorney merely followed a procedure used before the fiduciary relationship, the presumptions cancel each other out and the trial court is free to make a determination based on facts and the credibility of witnesses.11 However, if the financial agent actively uses his or her position to create the joint account or to make extraordinary deposits into the joint account, the presumptions do not cancel each other; instead, the presumption of fraud associated with the misuse of a power of attorney trumps the presumption of donative intent associated with a joint account.12

    Key Questions Regarding Power of Attorney Authorities and Timing

    Thus, the claim of John and Sally to funds in the joint account may depend on the following:

    • Was the power of attorney executed before or after the creation and funding of the joint account?

    • Did the power of attorney authorize Jane to establish a joint account, to make gifts to herself, or to engage in any other similar self-dealing?

    • Did Jane use the power of attorney to establish the joint account?

    • Did Jane rely on the power of attorney to deposit or transfer funds into the joint account?

    • Did Jane rely on the power of attorney to expend funds from Dorothy’s other accounts instead of the joint account?

    To resolve these issues, John and Sally must obtain a copy of the financial power of attorney, the account application for the creation of the joint account, account statements for the joint account, and deposit slips and endorsed checks to determine how and when funds were deposited or transferred into the joint account.

    Common-law “Convenience Account” Theory

    In addition to the duties associated with a power of attorney, Jane might be found to have had a fiduciary duty to Dorothy with respect to the funds in the joint account under the common-law theory of a “convenience account.” Essentially, if John and Sally provide clear and convincing evidence that Dorothy had a nondonative intent for the creation of the joint account, that is, Dorothy established it merely for the convenience of having Jane pay her bills, they can defeat the presumption of a donative intent and secure a claim to a portion of the funds.

    Black’s Law Dictionary13 defines a convenience account as follows:

    “An apparent joint account, but without right of survivorship, established by a creator to enable another person to withdraw funds at the creator’s direction or for the creator’s benefit.”

    Unlike a true joint account, only one person, the creator, has an ownership interest in the deposited funds. Convenience accounts are often established by people who want help with financial matters and want to make it easy for the helper to pay bills. Although the helper’s name is on the account, the helper does not contribute any personal funds to the account and can write checks or make withdrawals only at the direction of or on behalf of the creator.

    Case Law on Convenience Accounts

    In Plainse v. Engle,14 the Wisconsin Supreme Court held that an account titled jointly can be treated as the asset of only one of the parties, if the titling was only for the convenience of the depositor so that a joint account holder could withdraw funds for the benefit of the depositor. Ten years later, the supreme court again addressed the issue of a convenience account and stated that:

    “A joint account may give rise to an agency for what is sometimes called the joint account for the convenience of the depositor. In such a case, the non-depositor has the power to withdraw for the benefit of the depositing owner but no rights of survivorship are intended.”15

    According to the court, the “mere form of the joint bank account is not determinative but must be considered with the other facts and circumstances in order to determine what was intended to be created.”16 Thus, while boilerplate language on an account application providing for survivorship among the holders is relevant, it should not trump contrary clear and convincing evidence of a different intent.

    For instance, in In re Roth’s Estate,17 the supreme court found the testimony of a holder that he did not intend to create a joint account with his wife’s son sufficient to deny the wife’s son a beneficial interest in the joint account. Similarly, in Johnson v. Mielke,18 the supreme court upheld the trial court’s determination that an account was a convenience account when the defendant testified that he was added as a holder to the decedent’s account so that he could write checks to pay the decedent’s bills and that he intended to obtain no personal benefit from the account.

    Courts in other states have more recently applied the theory of convenience accounts to defeat the presumption that a joint account belongs to all of the holders.19

    Key Questions Regarding Convenience Accounts

    The question of whether an account is a true joint account owned by all holders or merely a convenience account owned by the depositor of the funds normally depends on a thorough examination of the circumstances. In the case of a joint account established between an elderly parent and an adult child, such as Dorothy and Jane, answers to the following questions may help prove whether the account constitutes a convenience account:

    • Was the account established and funded solely with assets of the parent?

    • Did the parent need assistance with the payment of bills at the time the account was established so that a convenience account makes objective sense?

    • Was the parent informed of the alternative of adding a power of attorney to the account and chose a joint account instead?

    • When the account was created or funded, did the parent suffer from any cognitive issues or infirmities of old age?

    • Did the parent have a history of holding joint accounts with this child or any other party?

    • Did the balance of the account initially represent only a small share of the parent’s estate and was it allowed to grow as the parent aged?

    • Were account funds initially used only to pay the parent’s bills?

    • Did the parent or the child indicate that the account was to be used to pay the parent’s bills?

    • Did the parent make statements to any third parties that funds in the account were intended to be a gift to the child?

    • Did the parent ever use funds in the account to make gifts to any other people?

    • Did the child ever deposit his or her own funds into the account?

    • Did the child increase the balance of the account by depositing or transferring some of the parent’s other funds into the account?

    Depending on the access of John and Sally to Dorothy’s records, an examination of these factors is likely to require significant discovery. John and Sally will need to obtain the bank records for the joint account, including statements and copies of checks, and they might need to serve Jane with written discovery and compel her deposition. Such efforts are costly in terms of time and money, but if these efforts provide clear and convincing evidence of a convenience account, Jane would be liable for her failure to divide the balance of the joint account in accordance with Dorothy’s will.

    Conclusion

    The practical ease with which joint accounts can be created makes them ripe for abuse or an inadvertent change to an estate plan. The law imposes legal presumptions on these accounts that gives an unscrupulous holder a distinct advantage to secure funds in contravention of another holder’s estate plan. Depending on the circumstance, these presumptions may be rebutted by fiduciary duties established through the existence of a power of attorney or the theory of a convenience account. Either theory will require a detailed factual analysis to establish the requisite clear and convincing evidence to set aside the donative intent assumed by the law.

    Types of Accounts Used in Estate Planning

    In the authors experience, clients who create joint accounts with a child or caregiver do not intend to give the joint account holder access to the account for his or her own use nor give the balance of the account to the other holder. For this reason we almost never recommend a client open a joint account. Instead, we discuss the different types of bank accounts available, their characteristics, and uses.

    Joint Account

    The presumption is that all joint account holders have unrestricted access to assets of the account during the creator’s life and the survivor of the holders retains the balance of the account after the creator’s death. Holders have no responsibility to account for use of joint account assets. Only use a joint account if the other holder is the sole beneficiary of the creator’s estate.

    POD or TOD Account

    For payable on death (POD) or transfer on death (TOD) accounts, the creator has sole access to the assets of the account during life. Upon the death of the account creator/holder, the balance of the account is paid to the named beneficiaries. Beneficiaries have no access to account assets during the creator’s life but will have quick access upon the creator’s death. POD or TOD accounts can be used to allow beneficiaries to pay bills of the creator soon after death. The creator should name all beneficiaries under his or her estate plan as beneficiaries of the account.

    Power of Attorney Account

    The account creator and a designated individual, as agent, have access to the account assets during the creator’s life. Assets must be used for the sole benefit of the creator and the agent is required to account for his or her use of assets of the account to the creator and the successor’s interest to the creator. This is the type of account we most often recommend because it meets the client’s goals of allowing a trusted person to pay the creator’s bills while the balance of the account upon the death of the creator is distributed pursuant to the creator’s estate plan (which may be a POD or TOD beneficiary).

    » Cite this article: 94 Wis. Law. 24-30 (May 2021).

    Meet Our Contributors

    If you had a time machine, what would you do?

    Peter J. WalshI would head into the future. While I am a history buff and would love to meet George Washington and Abraham Lincoln, the possibilities for the future captivate me more.

    I would love to know the answers to the pressing questions of our time, like: will we colonize Mars or make contact with other intelligent life in the universe; will we solve or at least adjust to climate change in a positive way; will we cure cancer and Alzheimer’s disease; and perhaps most interesting to me, will the Brewers ever win the World Series and will Aaron Rodgers deliver another Lombardi Trophy to Green Bay?

    Peter J. Walsh, von Briesen & Roper SC, Waukesha.

    What is your favorite place in Wisconsin?

    Aaron J. FoleyMy favorite place in Wisconsin is Ledge Park in Horicon. Exploring the caves and cliffs feels like a trip back in time. It is an amazing place to see the Niagara Escarpment, which is a great example of the effect on Wisconsin of the ice age.

    Aaron J. Foley, von Briesen & Roper SC, Milwaukee.

    Become a contributor! Are you working on an interesting case? Have a practice tip to share? There are several ways to contribute to Wisconsin Lawyer. To discuss a topic idea, contact Managing Editor Karlé Lester at (800) 444-9404, ext. 6127, or email klester@wisbar.org. Check out our writing and submission guidelines.

    Endnotes

    1 Wis. Stat. § 705.03.

    2 Wis. Stat. § 705.04(1) (emphasis added).

    3 See Restatement (Third) of Trusts § 7 (2003), comment a (a resulting trust is created when “the person making the transfer or causing it to be made did not intend to give the transferee the beneficial interest in question, and thus that the interest remained in the transferor or payor or his or her estate.”)

    4 See Wis. Stat. § 244.41; see also Alexopoulos v. Dakouras, 48 Wis. 2d 32, 41, 179 N.W.2d 836 (1970) (holding that unless power of attorney specifically allows agent to gift property to himself or herself, or contains an “unlimited or unbridled” gifting power, agent lacks authority to make gratuitous transfers).

    5 Wis. Stat § 244.14(1)(a).

    6 Wis. Stat. § 244.14(1)(c).

    7 Wis. Stat. § 244.14(1)(f).

    8 Praefke v. American Enter. Life Ins. Co., 2002 WI App 235, ¶ 20, 257 Wis. 2d 637, 655 N.W. 2d 456 (holding that extrinsic evidence of principal’s intent to allow agent under power of attorney to make gifts is not admissible when power of attorney does not expressly permit it).

    9 Russ ex rel. Schwartz v. Russ, 2007 WI 83, ¶ 3, 302 Wis. 2d 264, 734 N.W.2d 874.

    10 In re Estate of Harms,236 Ill. App. 3d 630, 603 N.E.2d 37 (1992); see also In re Estate of Rybolt, 258 Ill. App. 3d 886, 631 N.E.2d 792 (1994); In re Estate of Teall, 329 Ill. App. 3d 83, 768 N.E.2d 124 (2002).

    11 See Harms, 236 Ill. App. 3d at 639-640; Rybolt, 258 Ill. App. 3d at 890.

    12 See Rybolt, 258 Ill. App. 3d at 890 (“No presumption of donative intent can arise where the fiduciary makes a deposit of trust funds to a preexisting joint account.”); see also Teall, 329 Ill. App. 3d at 88.

    13 Black’s Law Dictionary (11th ed. 2019).

    14 Plainse v. Engle, 262 Wis. 506, 519, 56 N.W.2d 89, 57 N.W.2d 586 (1952).

    15 In re Kemmerer’s Estate, 16 Wis. 2d 480, 488, 114 N.W.2d 803 (1962).

    16 Id. at 487-88.

    17 In re Roth’s Estate, 25Wis. 2d 528, 533, 131 N.W.2d 286 (1964).

    18 Johnson v. Mielke,49 Wis. 2d 60, 78, 181 N.W.2d 503 (1970).

    19 See In re Estate of Boyd, 186 A.D.2d 394 (New York 1992) (holding that joint account between decedent and his daughter was a “convenience account” that passed to decedent’s estate when only the decedent’s assets were deposited into account and bulk of these assets were deposited into the account by the other holder through his power of attorney to the decedent); Teall, 329 Ill. App. 3d at 88 (holding that joint account was convenience account when non-depositor did not become joint owner until after becoming depositor’s financial power of attorney agent and depositor never told non-depositor that she wanted her to have money in joint accounts).




News & Pubs Search

-
Format: MM/DD/YYYY