Percy B. left all the cash assets in his estate to his second wife, Joan, through one joint bank account with rights of survivorship (ROS) and two pay-on-death (POD) accounts. These multi-party accounts are known as non-probate accounts, meaning that the assets are transferred, not through probate, but through contract with the banking institution. Percy left all other assets in his estate to his three children by his first marriage.
Percy named his daughter, Ashley, as executrix of his estate. Ashley determined that the assets in the estate were not sufficient to cover her father’s debts, taxes and administration expenses of the estate. Neither she, as executrix, nor her two brothers, as beneficiaries, are liable for these debts, taxes and expenses. Can the funds which Joan, as beneficiary of the non-probate estate assets, received be tapped to pay the remainder of the expenses?
Are ROS and POD Accounts Subject to Estate Debts, Taxes and Expenses?
Whether assets from multi-party accounts, such as ROS and POD accounts, are liable for debts, taxes and expenses, depends on two factors: (1) the date of the estate; and (2) the sufficiency of the assets in the estate to pay the debts, taxes and administrative expenses. Prior to September 1, 2017, it was unclear whether the non-probate estate assets were liable for their share of these.
The 2017 Texas legislature passed into law, effective September 1, 2017, the State Bar of Texas Real Estate, Probate and Trust Law bill, HB 2271, which clarifies that multi-party accounts are liable for their share of Federal estate taxes, and, if other estate assets are insufficient, amounts needed to pay debts, other taxes and administration expenses.
Percy B.’s estate owed no Federal estate taxes, so Ashley, as his executrix, did not have to deal with that issue. Percy died on September 18, 2017. Therefore, the new law applies and Ashley can take advantage of it to pay the debts, taxes other than estate taxes and administration expenses for which there are not sufficient assets left in the probate estate.
How Can Executors/Executrixes Reach Multi-Party Account Assets, if Needed?
Executors and executrixes, including Ashley, will face the problem of how to reach the assets from the ROS and POD accounts. The law does not spell out how this is to be accomplished.
Generally, a bank is protected from liability if it distributes assets from these accounts in accordance with the documents filed with the bank establishing the accounts unless the bank has notice that the accounts are disputed in some way.
Ashley should file her application for probate as quickly as possible and immediately give notice to the banks or other financial institutions involved that some portion, if not all, of the funds from the account may be needed for estate debts, taxes and administration expenses.
Even if an application for probate is immediately filed, it may take time to determine the assets and liabilities of an estate. In the meantime, the beneficiaries of the ROS and POD accounts may demand to have these assets distributed to them. If a financial institution has already distributed funds from the account, the estate representative will have to seek the funds from the beneficiary. In some families, this will not be a problem. The recipient of the funds will consider it only fair that he or she contribute. However, how an estate, already short of funds, collects from a recalcitrant beneficiary, is uncertain.
Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm in Fort Worth. She lives and practices in beautiful Somervell County, near Chalk Mountain.