Just whose money is it?

Doug Horn

Earlier this month I covered a few estate planning issues in an article entitled, “Dotting the I’s and Crossing the T’s of Estate Planning”. In that article I addressed the potential problems created in an estate plan when children or other trusted individuals are added to accounts for assistance with management. Just recently, one of my clients called seeking assistance when they received disturbing information from their bank.

My client is married and has one son from a previous marriage. Like many in second marriages, he wants to assist in taking care of his wife but also wants to transfer a substantial part of his estate to his only child. Several years earlier during a visit by his son, the father added his son to several of his bank accounts for the purpose of managing those accounts in the event of his disability or death. While we were not aware of this addition, the banks were willing to assist and provided their standard paperwork for this process. In doing so, the son was made a joint owner of the accounts.

No harm - no foul for several years. The father continued to use the accounts and reported the income on the accounts, that is until a letter arrived from the bank. Unfortunately, the son went through difficult times in recent years. First was the loss of a job followed by years of various kinds of employment; some were wage while others were contract. Then a divorce occurred followed by the demand for child support in addition to finding a new home. During these difficulties, the son failed to file several years of tax returns, and with the reduction of income and the new expense of child support, the income he did receive was consumed by living costs, and he did not pay into the IRS for his taxes during these years. During his last job in sales, he was starting to do well and even won a new car from the company. But since it was contract work, he was still responsible for paying in taxes, which he did not, and the car he had won was considered taxable income as well.

The letter from the bank my client received was a notice that the IRS was seizing thousands of dollars from his bank account to pay the his son’s taxes. Since the son was now listed as a co-owner, the IRS could claim these assets to satisfy the son’s debts, and my client had thirty days to respond. Clearly, this did not make for a good day of sipping a cup of coffee and reading the mail. Now the father is embroiled in the process of encouraging the son to get his taxes in order and in direct conversation with the IRS trying to satisfy their requests to prove none of the assets in the account actually belonged to the son. While the outcome is still unclear, it is obviously a process no one would want to go through.

For my client, it was a debt to the IRS by his son. But it could also be a claim from the courts for back child support or a law suit judgment. Adding children or anyone else as co-owners of an account can open a can of worms no one wants to deal with. While the actual account owner may prove the co-owner did not contribute to the account and loss of funds may be avoided, the time and expense to do so is something to avoid.

Using a durable financial power of attorney is one option. Another option is adding the person’s signature to the bank account as an “agent” and not an owner. This may not be the most common way to add someone to an account, but most banks should have this as an option. Before adding someone to the account for convenience, be sure it also does not become a liability.

For assistance with insurance, estate planning, and managing investments, contact me at Quality Financial Concepts or one of the other Certified Financial Planners in our area. To continue a personal quest for education, you can also view our learning center on our website, www.goqfc.com. There you will find articles on a variety of topics, on-line seminars, calculators, as well as a host of other free tools.

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