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Perils of Ownership

June 9, 2019

In Shakespeare's great play, KING LEAR, the title character discovered the danger of judging the love of his daughters by a willingness to make protestations of love in exchange for the advancement of their inheritance. Two daughters said all the right things, took the money he gave them and left him to die mad, homeless and penniless. He disinherited the third daughter who had remained silent, relying upon her acts of dutiful love to answer his question of how much she loved him.

A case a few years ago in the Georgia Court of Appeals demonstrated similar, albeit less dramatic, perils that are possible from the careless creation of joint ownership of a financial asset. An elderly woman, Virginia Gray, named two of her daughters as joint owners with her on several certificates of deposit that totaled about $230,000. All of the money for the CD's came from Mrs. Gray. In 1996 she suffered a disabling stroke and later that year the daughters cashed in the CD's and used the funds as their own. Just as in KING LEAR there was a third daughter. She took nothing from her mothers accounts.

A court-appointed guardian for Mrs. Gray successfully sued the daughters to recover the assets and was even awarded the attorneys fees and expenses incurred in bringing the suit.

Georgia law draws the distinction between access to such jointly titled CD's and the actual ownership of them. "A joint account belongs, during the lifetime of all parties, to the parties in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent."

Notice that the law speaks of "during the lifetime of all parties." Another problem from careless use of joint ownership arrangements occurs at the death of the true owner of the account. The decedent could have a last will and testament that benefits all of his or her children equally. Any joint asset, by the terms of the account agreement, will pass by way of survivorship to the other persons named on the account. It will not be part of the estate transferred in accordance with the will unless there is "clear and convincing evidence of a different intention at the time the account is created." By statute, Georgia prohibits a person from using his or her will to change the right of survivorship or "pay on death" provisions governing such an account.

As I have written before, "probate" may be something to be avoided in other states such as Florida, California or New York, but it is not so in Georgia. With a well-drafted will, the administration of a decedents estate in Georgia can be as easy as settling that person's affairs through the much-touted "living trust." Joint ownership as a means of "avoiding probate" is the wrong tool being used for an unnecessary task.

The same convenience of a joint account can be obtained through the use of a power of attorney for an account given by the elderly parent to the adult offspring. The financial institution will usually require a signature card signed by the account holder and the "attorney-in-fact." A word to the wise: even when there is a formal document establishing a power of attorney relationship, banks, and other financial institutions such as stock brokerage houses and mutual funds, have been known to require such signature cards or the execution of their forms before honoring any power of attorney designation.

Another problem I have seen is the vulnerability of the joint account to the claims of the creditor of the adult offspring. A garnishment served on the bank by a judgment creditor will tie up the joint account for months if the "real owner" of the account wants to argue that his child does not have a legal interest in the account subject to a claim by the creditor. Most of the time it will be easier to pay off the money owed instead of fighting a court battle.

The sloppy use of joint ownership can create a contentious situation where people may honestly differ over what was intended, or a golden opportunity for someone to steal a fortune and get away with it. If they spend it all before they are caught, a court judgment will be of little comfort.

At a continuing legal education seminar I attended a few years ago, I heard a veteran estate planning attorney swear that he hated joint ownership arrangements. Now you can see some of the reasons why.