Every person’s account and financial journey is unique and it can also change over time. Account titling is a valuable tool in accomplishing the goals of the Owner(s) of the account. However, because each situation is so unique, it is nearly impossible to give you the “right advice” without first sitting down and understanding the purpose of the money and your unique financial picture.
Our best advice is to talk to us at account opening, or anytime you are considering making a change in ownership, control, or gifting your money to others. While we are not tax accountants or attorneys, we have seen many unfortunate situations over the course of our banking careers that could have been avoided had we had the opportunity to sit down and ask the right questions about the purpose of these changes prior to an event.
For instance, we have seen members who have had to pay an excessive amount of inheritance tax on their own money when a joint owner passed away. Members have had sufficient funds to carry out their final requests tied up in legal matters because titling was not properly executed. We have seen members not have their final wishes for inheritance distribution carried out because of improper titling. Funds have been drained because of account ownership disputes. None of the previous examples are to scare anyone into action. They are cautionary tales of members who did not plan for the future. Some of these examples can be resolved with time, patience, and legal representation. But was that the original intention of the Owner of the account?
Again, our best advice is to talk to us at account opening, or anytime you are considering making a change in ownership, control, or gifting your money to others. We have experience to help guide you in the right direction to accomplish your goals. However, we understand that we may not be your primary financial institution, and we may refer you to a tax accountant or attorney for more specialized care. Like most of our products and services, our advice is free. Let us help where we can.
There are several options when it comes to account titling. Below are the most common account titling structures that we offer.
Joint Ownership
Joint Owners of the account have 100% shared responsibility and ownership of any and all deposit accounts (with the exception of IRAs). Joint Ownership lasts for life and in the event of the passing of one Owner, the account immediately becomes the sole responsibility and benefit of the surviving Owner.
Advantages: 100% Ownership. Therefore, no ownership limitations exist.
Disadvantages: It is difficult (and at times impossible) to remove a Joint Owner. Additionally, there can be inheritance tax liabilities transferred to the surviving owner, in the event of death of the other owner. In the State of Pennsylvania, there are no inheritance tax liability for Joint Owner spouse.
Power of Attorney (POA)
A POA is a legal arrangement where a designated representative, or “agent”, has the right to act on behalf of the owner, or “principal”, in legal and financial matters. The agent has almost the same powers of ownership as the Owner principal of the account. On the Owner’s behalf, and as a fiduciary representative, they can conduct virtually all transactions on the account. The agent’s power to act under a Power of Attorney ceases upon the death of the Owner principal.
Advantages: While the POA has the full right to act as the Owner in financial matters, they have no ownership interest in the funds nor take possession of the funds or collateral in the account. Unlike joint ownership, there is no inheritance tax liability for the agent because the surviving owner or estate of the decedent becomes the owner of the account at death and is responsible for any inheritance tax to be paid.
Limitations: The POA has two restrictions of note. The first is, an agent cannot add themselves as a Joint Owner of an account. The second is, the agent cannot set themselves as the beneficiary of funds of an account. Both of these functions can only be completed by the Owner(s) of the Account.
Additionally, POAs are individual specific. Therefore, if one Joint Owner has appointed an agent under a POA, the POA ceases at death and the former agent cannot act as an agent for the surviving Joint Owner unless designated as an agent by the surviving Joint Owner in their own POA.
Disadvantages: POA ceases upon death. The former agent of the account under the POA no longer has the ability to execute the final wishes of the Owner. In most cases, Probate Law applies to the funds remaining in the account. The final execution of funds will be determined by the Executor / Executrix (i.e., personal representative) of the Estate.
There is a provision in the State of Pennsylvania to make a Small Estates Claim. This provision does not impact inheritance tax, but can be used, in part, to ensure that final funeral home and burial expenses can be achieved. You can consult one of our representatives or an attorney regarding this exception.
Payable on Death (POD)
In Pennsylvania, there is a Payable on Death (POD) provision that allows the Owner of an account to name a designate who will inherit the asset upon the Owner’s demise. This provision circumvents the often lengthy and complex probate process. The named designate has no legal rights to the asset during the Owner’s lifetime. In fact, the named designate, need not know they have been designated. The assets only transfer upon the Owner’s death. This transfer process is typically quicker and more cost-efficient than the traditional probate process, as it does not involve court proceedings.
It is possible to designate multiple people (or even an entity) as the object of inheritance. The Owner has the right to set percentages of distribution to each party. If no designation is specified, the funds will be split evenly among all designees.
Joint Owners must agree to POD designations.
The bigger considerations of account titling
As you can see, these are complicated and consequential decisions. We are not lawyers or accountants. As a credit union, we do not have all the knowledge, but the more we understand about you and your goals, the better advice we can render. Advice does change based upon the amount of money that would end up in an estate. Not because we reserve better advice for those with more money, but because tax implications change with the total dollars involved in a situation.
Account titling can have an impact on NCUA (and FDIC) insurance coverage as well. It is possible to secure more than $250,000 of money on deposit at a single financial institution if the accounts are titled properly.
Our best advice is to talk to us at account opening, or anytime you are considering making a change in ownership, control, or gifting your money to others. We must also stress that planning advice varies depending on your particular financial situation and estate planning goals. You are encouraged to consult with your tax professional and attorney so as to ensure that your account titling aligns with your overall estate plan. This information is for informational purposes only and is not intended to be, nor constitutes a substitute for, professional financial, tax, or legal advice.
We are not interested in making sales. We realize that every financial institution in the world tells you that they need your “full financial relationship” disclosed in order for them to sell you their best product and service. We are not driven by sales goals. Our goal is to do the best we can for each of our member’s unique situations.
You have worked hard for the funds in your account or the things that you have accumulated in your life. Some of our members have $1,000 in their accounts and some have $1,000,000. They each have the right and expectation that their money is safe, convenient, and provides them significant value when they are alive; and distributed appropriately upon their passing. Let us help you meet those expectations.