Your Estate … with James Ward: Talk with an expert to ensure you don’t have ‘orphan accounts’

Orphan accounts get left behind.

By James Ward

James Ward

What Are “orphan accounts”?

How do your bank accounts and investment accounts get to where you want them to go after your death?

If you own real estate, we generally move it into the trust for you. But what about your bank accounts and investment accounts? We can’t generally re-title those accounts for you and move them into the trust. That’s something that you need to do.

What are “orphan accounts”? Those are accounts that get left behind. They didn’t get moved into the trust, and they don’t have joint owners or named beneficiaries.

If your son or daughter is a joint owner on the account with you, it goes to them as the sole owner upon your death, but it is also their account while you’re living. Is that what you want? Do you want that joint account holder to have easy access to the funds for themselves? Do you want the account to be exposed to the claims of the other person’s creditors? Maybe you’re not worried about it, but you should at least consider it.

What about POD or TOD? POD is Pay on Death, and is usually for bank accounts. TOD is Transfer on Death, and is usually for brokerage accounts. In both cases, you’re naming a beneficiary or beneficiaries to receive the funds upon your death. If you have dementia or a major stroke, but haven’t died, the accounts are still owned by you and the Trustee can access them for you if the accounts are in the trust. If the accounts are not in the trust, your Agent under a power of attorney can access the funds if you have a good power of attorney.

Orphan accounts are ones that get hung up with no home after your death. If you have a good trust and will, the money should eventually get where you want it to go, but why make it difficult for your spouse or heirs? Make it easy for people to get to your end wishes.

I recently had a client die and the couple’s total net worth was about $4 million. Almost everything was in perfect shape, but there was one account of less than $1,500 that went astray. That’s an orphan account, and nobody can figure out why it wasn’t part of the accounts in the trust. It’s not a serious problem, but the cost of recovering that small amount may exceed the value in the account.

In another case, there was an orphan account of about $12,000, but because the family was at war with one another and nobody wanted to talk to other family members, it got left behind.

What happens when an account gets left behind? It may eventually go to the state as unclaimed property.

A client in his 80s recently came to me for help with a problem that originated with his grandfather many years ago, and it still hadn’t been resolved. Are you kidding?

The grandfather died in 1936! He had a total of 12 kids with two different wives. His first wife died in 1910, and his second wife died in 1975. The grandfather’s fourth child had seven children, and my client is the youngest of those seven. They all signed affidavits for the distribution in 1998, and then the other siblings all died between 1998 and 2016. Between 1998 and now, nothing has been resolved.

My client is the last surviving child of the fourth child of the grandfather, and now he just got a notice that everything had been turned over to the state as unclaimed property.

The grandfather’s second wife died in 1975. And yes, 48 years later, the mess still hadn’t been resolved. What a total, unfortunate mess!