......Trying to use bank accounts in place of a will or trust?...Some important points to be aware of in Arkansas...
"I don't need a will. I've got everything taken care of with my bank accounts and certificates of deposit (CDs)".
At times joint bank accounts can avoid the need for a will, and for probate of the will after death. It depends very much on each individual's situation. Bank accounts cannot, of course, be used to dispose of items other than money (e.g. real estate, stock, furniture). Wills often offer more flexibility than bank accounts.
Care must be taken in setting up the accounts. For example, suppose a widow has a $90,000.00 CD and three daughters, one of whom lives nearby and the other two live in California. Suppose further that the widow adds her Arkansas daughter's name to the CD. This is often done so that the child can use the money for the parent if anything happens to her. This arrangement normally would give the Arkansas daughter full right to withdraw the money, both during her mother's life and after her death. After the mother dies, the Arkansas daughter will have no legal obligation to share the money with her California sisters.
The problem might be cured by the widow adding all three daughters' names to the CD. This typically would give any of the three the right to withdraw the money during the widow's life, or after her death. This can cause problems. Suppose the Arkansas daughter withdraws the money shortly after her mother's death, and spends it. Her sisters might have to sue her to try to collect their share. They would not have a claim against the bank, since the Arkansas daughter did have the right to withdraw the money.
Sometimes special arrangements can be made with the bank. In the first example, the bank might allow the widow to specify that the Arkansas daughter had withdrawal rights during the widow's lifetime, but that on her death it was payable in equal shares to the three daughters.
The FDIC has liberalized deposit insurance rules in recent years. Joint accounts are a separate type of account ownership and, as such, have separate insurance limits. Each depositor is allowed to have $250,000 in joint bank accounts at a given bank, in addition to $100,000.00 in accounts in his name alone at the same bank. Additonally, he can have an additional $250,000.00 in eligible retirment accounts. In addition, there are ways to finesse to obtain even more coverage.
Nevertheless, for people with significant assets care must be taken to insure that their bank accounts do not exceed the bank's insurance limits. The FDIC regulations are somewhat complex, and should be examined separately for each person's situation. While the bank's employee may be well intended in providing advice, there is no substitute for independently verifying insurance coverage.
As mentioned, you can have an additional $100,000.00 in accounts in your name alone. However, such funds will not automatically go to anyone upon your death. Probate likely would be required to distribute the funds to your spouse and heirs. Note also that certain bank products are not insured by the federal government (e.g. mutual funds, stocks, bonds, annuities, and the contents of safe deposit boxes).
A basic rule is not to create a new type of account at a bank simply to stay within the deposit insurance rules.Suppose the widow in the above example has $90,000.00 in a bank in her name alone, and has a will disposing of her money and other property to her daughters upon her death. As her funds approach $100,000.00, she could open joint bank accounts at the same bank using hers and one or more of her daughter's names. However, it probably is more in keeping with her basic estate plan to open an account at another bank in her name alone.
A full review of the deposit insurance rules are beyond the scope of this article. Since the rules are complex,you should obtain legal advice regarding bank account estate planning.
If you live in Arkansas, we would be glad to assist you with your estate planning. For an appointment, please call 479-968-4747 (Russellville area) or 888-295-4741 (Arkansas state-wide toll-free).
Copyright (c) 2011, Jim Carfagno, Jr., P.A. All rights reserved.