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Vital Steps To Take Before Investing In A Business

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While no reasonable investor would fund a business on the brink of financial ruin, sometimes, that’s exactly where investors find themselves. This happens when debtors lie about their financial health to secure a loan.

What surprises many clients is that investors often find themselves with no recourse against duplicitous debtors if they fail to take a critical step as part of their due diligence. For various reasons, the most well-intentioned creditors seeking investment opportunities find themselves empty-handed when their debtors file for relief from the debts in bankruptcy court. Unless a bankruptcy judge declares a debt nondischargable, creditors can be completely out of luck.

Fortunately, though, all hope is not lost. The U.S. Bankruptcy Code protects creditors, too, including provisions that allow certain claims to be declared nondischargeable. This means that bankrupt debtors may still be legally on the hook to repay debts, even if the rest of their debts are discharged (released) through the bankruptcy process.

While there is a booming industry of lenders who knowingly take (calculated!) risks in lending funds to debtors without fully knowing their financial situations, this article is directed to the unwitting lender who did not fully understand the risk involved in a transaction. Lenders can – and should – take certain vital steps to ensure they understand a debtor’s financial health before entering a transaction.

Non-Dischargeable Debt: The Bankruptcy Code’s Lender Protection Provision

The U.S. Bankruptcy Code protects creditors by barring debtors from discharging certain debts if they obtained such debt by false representations or fraud, including a failure to disclose their financial hardships or challenges.

In a bankruptcy case, debtors can seek relief from various debts, many of which will be discharged unless a creditor files an objection. These actions will take the form of an “adversarial proceeding” under the Bankruptcy Code and will lead to an entirely separate legal action.

11 USC 523(a)(2) is a mainstay of the bankruptcy system. In short, it protects creditors from losing money to a debtor who may have misrepresented – or failed to disclose the full extent of – his financial situation.

Let’s take a closer look at the Bankruptcy Code’s language: 

(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt . . . .

(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by—

(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition;

(B) use of a statement in writing—

(i) that is materially false;

(ii) respecting the debtor’s or an insider’s financial condition;

(iii) on which the creditor to whom the debtor is liable for such money, property, services, or credit reasonably relied; and

(iv) that the debtor caused to be made or published with intent to deceive[.]

Stated differently, this section of the Bankruptcy Code allows creditors to seek a court declaration that their debts were obtained by false pretenses, a false representation, or actual fraud, and are therefore nondischargeable.

Although the Code doesn’t define the terms false pretenses, false representation, or actual fraud, a bankruptcy court will apply rules and guidelines established in prior cases with similar fact patterns. 

Most importantly, however, the Code only allows false representations about the debtor’s financial condition to serve as the basis of a dischargeability objection if those misrepresentations were made in writing.

The law affords a basic protection: If a debtor lied about (or concealed the full extent of) his financial situation, in writing, before you loaned it money, the debtor may be prohibited from receiving the benefit of having the debt discharged through the bankruptcy system. This means that as a creditor, you may be able to ask a judge to declare your debt nondischargeable.

What Should You Do to Protect Yourself Before Lending Funds to a Business?

Simply put, you, as the lender and potential creditor, must insist that everything related to the financials of your debtor is put in writing before lending anything to keep open the possibility that your claim would be considered non-dischargeable. Ultimately, it will be your burden to prove that the debtor’s statements were materially false and that you relied on those statements to make the loan. If you do not have these representations in writing, unfortunately, you are out of luck.

If you’re a creditor, it’s your burden to prove that the debtor was intentionally deceitful, misleading, or fraudulent in his dealings.  You must also prove that you relied on the debtor’s misrepresentations in deciding to lend him funds.

To ensure your claim remains nondischargeable and to keep your debtor on the hook, develop a practice of collecting financial statements from your debtors before lending any funds. If you lend money to either an individual or business, secure a written statement about the debtor’s financial situation.

The best way to do this is by requesting the following information from the debtor: 

  • written profit and loss statements
  • balance sheets
  • cash flow statements
  • bank records for multiple pertinent time frames

Also, demand that the debtor make written representations that the financial documents provided are true and accurate and that the financial documents disclose all his liabilities. If it turns out that the debtor falsified those statements in any way, you will then have a leg to stand on should you object to the discharge of your debts in bankruptcy court.

These critical steps can be useful in other ways: They will force the debtor to be open and transparent. Securing accurate financial statements will help you assess the debtor’s financial health, potentially saving you from making a bad business decision (that is, lending money to a debtor on the cusp of financial ruin).

Contact Our Experienced Business Law Attorneys.

If you find yourself in need of advice and representation regarding a dischargeability dispute or any number of bankruptcy issues, our attorneys are experienced in representing both debtors and lenders and are here to help.

At Wilson Ratledge, we assist businesses in taking steps to keep them financially secure, while protecting them from legal pitfalls. For assistance growing your business or navigating a deal, contact one of our experienced North Carolina business attorneys today at 919-787-7711 or via our contact form below.

How A Tax Attorney Can Help You Navigate Tax Controversies

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When they hear about “tax controversies,” many clients initially think of the IRS demanding audits. However, because taxes affect so much of our daily lives, tax controversies can take various forms. Local property tax appeals, state and sales tax controversies, and issues regarding federal and state income tax (at the audit and collections levels) are just a few common types of tax controversies you may face. These issues, among others, can cause significant financial burdens.

Here, we will discuss how tax controversy attorneys can help you resolve taxation issues at both the state and federal level. We will also survey common resolutions to tax disputes, focusing on one common avenue for resolution.

For questions about your potential tax liability and how our team can help you work out issues with either the IRS or the North Carolina Department of Revenue, give us a call.

What Do Tax Controversy Attorneys Do?

Hiring a tax litigation attorney can potentially save you from facing penalties, fines, and even criminal action stemming from noncompliance. However, it is vital to ensure that the attorney you’ve hired is experienced in handling tax-related cases: It is important to note that tax litigation attorneys offer a different skill set than tax planning attorneys. While the skill sets do overlap, tax litigation attorneys need to understand more than just the inner workings of the IRS and the tax code: They also need to understand the rules of evidence and civil procedure, as well as the administrative procedures involved in litigating tax cases.

When working with a tax litigation attorney, you will gain a professional and advocate who will apprise you of the advantages and disadvantages of different courts and litigation strategies, what evidence you need to support your claim, and the risks involved in litigating your case.

When Should I Hire A Tax Attorney?

While many tax-related issues can be resolved without engaging an attorney (for instance, if the IRS demands an audit, the key is to respond immediately upon receiving your first notice), there are some situations in which legal counsel can be enormously beneficial in helping you avoid serious consequences – particularly if legal issues are tied up in the disputes.

Some issues that may require the help of a tax dispute attorney include:

  • Claims of tax fraud or tax evasion.
  • Audits involving business-related taxes like payroll or sales tax investigations.
  • An audit involving issues such as frozen assets, a deficiency balance, incomplete books or records, an inability to pay, a failure to file returns for a certain number of years, charges for taxes you do not owe, or the expiration of the statute of limitations.
  • Audit rulings that you believe are inaccurate.

A tax attorney may also be helpful if:

  • You intend to negotiate a settlement or payment plan for your outstanding tax balance. You may want to engage an attorney’s help in these situations because payment plans require thorough documentation in order to avoid further tax liability and collections attempts from the IRS.
  • You hope to prevent tax-related issues from arising in the first place. For instance, if you have questions about how to keep business records, manage payroll tax, what comprises taxable income in your business, how to manage employee deductions, and other issues, you can work with an attorney proactively to keep issues from arising down the road.

What Are Common Solutions to Tax-Related Disputes?

Running into a tax dispute is never easy, but many are unaware of the plethora of options available to reduce possible penalties associated with tax issues. A tax attorney can work with you and your tax preparer to consider the best possible resolution.

A few common avenues for resolution include, among others:

  • Offers in Compromise
  • Installment payment plans
  • Audit representation
  • Tax court representation
  • IRS appeals hearings
  • Trust fund recovery penalties
  • Innocent spouse representation
  • Non-filer representation
  • Tax levies, garnishments, and seizures
  • NC sales and use tax audits
  • Estate tax audits
  • Jeopardy assessments
  • Discharge of taxes through the bankruptcy process
  • Independent contractor determinations
  • Enrollment tax representation

What is an Offer in Compromise?

A common solution to tax issues, an offer in compromise is, in short, an agreement between a taxpayer and the IRS that settles the taxpayer’s liabilities for less than the full amount owed. To secure an offer in compromise, you will need to convince the IRS that:

  • You are unable to pay the full amount owed within a reasonable timeframe, either as a lump sum or through a negotiated payment plan.
  • The total amount of your tax liability is in question.
  • Payment in full would cause an economic hardship or be unfair to you in some way.

To make this determination, the IRS will examine your income and assets in order to discern your “reasonable collection potential.” To do so, your attorney will help you provide detailed information about your financial situation on the IRS Form 433-A, the “Collection Information Statement.” This will include information about your cash flow, investments, credit, income, and debt, which the IRS will verify. Your attorney can help you gather this information.

The amount of your offer must be equal to what is called the “realizable value” of your assets, plus the amount of money the IRS can take from your income. For instance, if your assets equal $100,000 and the amount of your future income available to the IRS is $50,000, then your minimum offer should be $50,000.

Before working out an offer with the IRS, it is vital to speak with a tax attorney to ensure you are complying with the necessary formalities.

Contact Our Experienced Tax Attorneys

At Wilson Ratledge, our tax controversy attorneys represent taxpayers in disputes with the IRS and the North Carolina Department of Revenue. We regularly handle disputes involving tax liens, audits, and collections, as well as other various aspects of tax controversy and litigation. For assistance, contact one of our experienced North Carolina tax attorneys today at 919-787-7711 or via our contact form below. We look forward to serving you.

Do I Really Need A Bank Account for My Business?

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Many new entrepreneurs and founders question whether they really need to open a bank account solely for their new ventures. In short, the answer is a resounding yes. Here, we outline a few key reasons why setting up a separate business bank account can keep your company’s finances secure while making sure your personal assets are safe.

Why Keep Them Separated?

In deciding whether you need a bank account for your business, think about the reason why you would set up a business at all: To keep your personal and business identities separate for legal, financial, and taxation reasons. 

On a practical level, this means keeping your business and personal assets separate so that in the event someone sues your company, your personal assets will be shielded from a judgment. In the legal world, this separation between the business and the founder him or herself is referred to as “the corporate veil.”

When lawyers discuss “the corporate veil,” it’s easy to miss the real-world impact of this protection. Imagine that a third party sues your new entity and wins – let’s say it is a bank trying to collect on your company credit card. The bank may use the judicial process to collect that money in a variety of ways, from forcing you to transfer cash to it or by selling your assets in order to generate liquid funds. 

If your company does not have enough cash or assets to satisfy the full amount of the bank’s judgment, then the bank can – and likely will – turn to your personal assets. That is, the sheriff can show up to reclaim your car, put a lien on your home, or withdraw funds from your personal bank account.

Fortunately, there is a way to protect yourself from this nightmare scenario. This is where the corporate veil comes in. The law sets forth several ways to create a corporate veil to protect your business assets – for instance, making sure to follow corporate formalities in running your business. A critical way to create a protective corporate veil, however, is to keep your business and personal assets separate. Arguably, the most unambiguous way to do this is to create a separate account for your business funds.

This matters because a common way for parties to “pierce the corporate veil” is to demonstrate that companies are operating as though they are not, in fact, separate and distinct from the people who own and run them. If you use your personal checking account to cut business checks and deposit client funds into your personal account to pay down your personal bills, you will face an uphill battle in trying to argue that you and your business are, in fact, separate entities.

Keeping the Corporate Veil Intact

In general, business owners have the benefit of the corporate veil to protect their personal assets from business risks, unless there is a good reason to remove that protection. To ensure that you can keep that protection well intact, take the following steps:

  1. Set up a separate bank account for your company through your financial institution of choice.
  2. Commit to using that account ONLY for business purposes.
  3. Commit to using your personal bank accounts ONLY for your personal financial transactions.
  4. Only transfer money between your corporate and personal accounts if you are following the proper corporate formalities required for doing so. If you aren’t sure what these formalities are, consult your lawyer or accountant.
  5. Keep detailed records of all your business expenses, revenue, and recurring expenditures.
  6. If you are unsure of how to handle your business taxes vis a vis your personal ones, hire an accountant experienced in working with startups and small business owners.

Bookkeeping Benefits

Legal formalities aside, maintaining a separate account has numerous other benefits. Keeping separate accounts for personal and business items makes your accounting and bookkeeping practices simple and streamlined. Not only does it save you from parsing your various personal and business expenditures, but it also helps ensure you have included all of your deductible business purchases in your accounting system. If you don’t do this, it can be easy to miss many line items that can help you come tax time.

When you keep your business and personal transactions separate, you will have a clean record to present your preparer at the end of the year. Make sure that you keep your invoices and receipts should you need to furnish proof of particular expenditures.

How Do I Set Up A Business Bank Account?

Fortunately, it is relatively easy to set up a business bank account.

Gather your documentation.

At a minimum, you will need to provide your institution a copy of your filed Articles of Incorporation (for corporations) or Articles of Organization (for LLCs). You will also need to prove your IRS Employer Identification Number or EIN.

Watch out for hidden fees and costs.

When selecting a type of account to use, make sure you confirm whether there is an initial or ongoing minimum deposit requirement. Additionally, read the fine print on monthly fees and charges. When starting a new business, it is important not to be suddenly hit with unexpected fees or charges.

Ask about benefits.

Finally, make sure you ask your representative at your bank about any perks or features, like ways to automatically sort your deposits, how to set up online bill pay, and whether there are any rewards for opening a business credit card with that bank.

Contact Our Experienced Business Law Attorneys         

Starting a business is a thrilling endeavor. However, failing to abide by the proper legal and corporate formalities can land you in trouble. At Wilson Ratledge, we assist business founders in taking steps that keep their businesses – and their personal assets –secure and sound with an eye toward protecting them from avoidable legal pitfalls. For assistance setting up your business account, or for questions regarding your entity, contact one of our experienced North Carolina business attorneys today at 919-787-7711 or via our contact form below.

The Durable Power of Attorney

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What would you do if you were suddenly unable to make decisions regarding your real estate or finances? Who would step in to help manage your affairs if you needed help to do so? A power of attorney can help you navigate these challenges.

What is a Power of Attorney?

A power of attorney (POA) is a legal document that authorizes one person to act on behalf of another. An agent may have special or limited authority under the POA for a specific transaction, or broad authority to make decisions on multiple topics.

POAs are useful in the event of an illness or disability. An agent can pay bills, manage finances, and handle other specific business for the principal if the principal can no longer handle his or her financial affairs. However, this does not just apply to incapacity: You can also use a POA for temporary assistance if the principal will be out of the country or otherwise unavailable to make legal decisions for an extended period.

Specifically, a “durable” POA is a document that survives once the principal becomes incompetent or incapacitated. This is an important feature that may eliminate the need for lengthy delays and costly litigation later. If a POA is not durable, either by explicit language or other circumstances, the document terminates when the principal becomes incapacitated or mentally incompetent.

What Are the North Carolina Laws Governing the Durable Power of Attorney?

The North Carolina Uniform Power of Attorney Act is the governing law on POAs and includes definitions, agent duties, and information about when a POA is valid and effective. The law was updated in 2018.

The Old Law

The pre-2018 law did not define “incapacity” and failed to provide a clear set of criteria for how – and when – a principal would be deemed incompetent under the law. As such, a principal’s capacity (or lack thereof) was often left up to an affidavit that frequently ended in litigation.

Also, under the old law, a POA was presumed not durable, unless the document specifically stated otherwise through language like, “this POA shall not be affected by my subsequent incompetence or incapacity.” Further, the old law stated that a durable POA was only valid if it was registered in the relevant county’s register of deeds office before the principal’s incapacity set in.

The New Law

The new law, effective as of January 1, 2018, streamlined the POA requirements and defined incapacity as:

“The inability of an individual to manage property or business affairs because the individual has any of the following statuses:

  1. An impairment in the ability to receive and evaluate information or make or communicate decisions even with the use of technological assistance.
  2. Is missing, detained, including incarcerated in a penal system, or outside the United States and unable to return.”

Also, a POA is now automatically considered durable. As such, a principal who wants his or her agent’s authority to terminate upon the onset of incapacity must explicitly write this into the document. So, in other words, your POA is now durable, in essence, by default. Unless the POA specifically states incapacity as the trigger for termination, the POA does not automatically terminate upon the principal’s incapacity.

The new law also identifies the appropriate process for determining capacity. If the principal conditions the effective date of the POA on incapacity and does not authorize a person to make the status determination, two individuals from the medical field or one appropriate government official will make the call.

How Does the Change in the North Carolina POA Law Affect My POA?

Although the new law jettisoned the recording requirement for POAs and now durable POAs need not be recorded with the register of deeds, the recording requirement nonetheless still applies to POAs executed before January 1, 2018. If your pre-January 1, 2018, POA is not recorded and the principal has since been deemed incompetent, your POA is likely invalid.

As such, make sure you check your document to see what law applies – the old or the new. A seemingly insignificant detail can determine whether an agent had the authority to act on the principal’s behalf – an issue that can give rise to contentious litigation.

How Do I Know When My Loved Ones Needs a POA?

A POA gives an individual the ability to make legal decisions on your behalf. If you foresee any situation where you may be unable to make a legal decision, proactively executing a POA giving someone you trust the authority to make these decisions for you can save your family from the stress of figuring it out later.

You should have a POA when you anticipate an inability to make decisions on your own. It is common to execute a POA in retirement or when a person is facing a long-term medical crisis that will impact one’s decision-making ability. However, POAs are also useful for individuals who travel abroad or may otherwise be unavailable for an extended time.

An agent can help make decisions that are in your best interest. So, even if you just need some help managing your obligations, a POA may be a good option since an agent can assist you in making decisions that are in your best interest.

Remember that a POA is only valid if the principal is competent when the document is executed, so be proactive. If you wait to prepare a POA until something happens where you need one, it could be too late.

Contact Our Experienced Estate Planning Attorneys     

At Wilson Ratledge, we assist our clients in preparing and executing documents that help them remain financially secure and sound. We understand that helping a family member through the onset of incapacity is trying and emotional and are here to help you navigate the challenges that arise. For assistance, contact one of our experienced North Carolina estate planning attorneys today at 919-787-7711 or via our contact form below. We look forward to serving you.

How – And Why – To Keep Your Investors in the Loop

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In the excitement of obtaining initial financing, many founders forget about their investors the second the first check clears. Nonetheless, your investors have a vested interest in your business and expect a return on their contribution of cash, time, expertise, and business connections. As such, keeping them informed can help you cultivate a positive, long-term business relationship. Conversely, keeping them in the dark means sowing the seeds of discontentment.

In short, your investors can be the key to business growth – but keeping them in the loop is critical to establishing a symbiotic business relationship that will see your business through major stages of financing, growth, and development.

48 Hours After Closing

Forging a positive relationship with your investors starts immediately after the deal closes. While it may be tempting to immediately announce your first round of financing, hire new team members, sign a lease, or otherwise plow forward in using your new funds, hold off until the money is in the bank and you have connected with your investors. Jumping the gun before the deal is done may make you appear impulsive and mean losing your investors’ trust before your relationship officially commences.

Once the deal is done, remain focused on your stated goals and intentions and avoid moving too far afield of what you and your investors initially discussed. Doing so will ensure that your investors know you will use their money wisely and for the reasons you initially professed needing it.

Periodic Updates

Once the check has cleared and you start using your new funds, commit to keeping your investors updated on a regular basis. A healthy practice is to create an email template that will propagate each month or quarter, providing updates on new deals, customers, revenue goals, and key performance indicators.

Sending updates on a monthly or quarterly basis instills confidence in your investors through predictability and spares them the need to ping you for updates. Not to mention, if they receive regular updates, they will know they’ll hear from you – meaning they have little reason to worry or fear that you are not using their investment wisely. It also helps you build stronger bonds with them: Cover all your bases in an email so that when you have an actual conversation or meeting, you can delve deeper on certain points like brainstorming long-term growth goals.

Here are a few items you may consider including in your monthly or quarterly update.

Statement of Appreciation

Your relationship with your investors is a social engagement and as such, start your correspondence by showing your appreciation for their contributions to your business. Before you dive into metrics, highlights, and KPIs, take a moment to express gratitude for connections your investors helped you make, provide introductions to other industry connections, and offer them feedback or assistance.

Asks

Commit to long-term business growth beyond the investors’ initial capital contributions by drawing upon their industry knowledge and connections. Ask them to help you connect with other business owners, employment candidates, or partner organizations. Additionally, share your recurring business challenges and ask them to offer their feedback, advice, or assistance.

Do not be afraid to take advantage of your investors’ connections in your industry. Although you do not want to abuse this privilege, keep in mind that if your business fails, your investors will be more likely to help you if you can show that you attempted to make the most of their investment and the opportunities they afforded you.

KPIs and Key Metrics

Your investors will want to know how their investments are performing. Offer solid figures and be transparent in sharing how your business is faring. In this section, discuss your cash flow, revenue goals and benchmarks, and long-term growth goals.

Keep this section short and easy to digest: Use a few bullet points and provide supporting data to show improvement in your metrics.

Highlights and Milestones

Share what is going well in your business, not just financially, but in terms of new opportunities and prospects, team growth, leadership opportunities, and your business’ place in the market. Ideally, these milestones will match the goals you set forth in your initial pitch deck during your fundraising round. If you did not include any, create benchmarks and back them up with data.

Low Points

In the spirit of being transparent with your investors, don’t just share the positives: Also reveal the challenges your business is facing, any losses you have sustained, and what you hope to improve in the coming month or quarter.

Your investors are not outsiders: They are your business partners. They may be the first to help you when something goes wrong. Sending out updates builds trust with them and lets them in. It also increases the odds that they will help you when you need it. If you keep them in the dark, they will expect the worse, losing confidence in you and your company.

Expectations

Share what you are looking forward to, such as conferences, plans, goals, and team updates. Additionally, give your investors a forecast of how they may be able to help you in the coming month or quarter.

Stay Organized So That They Do Not Have To.

Archive your correspondence in a separate, shared folder. Your investors are busy people, so they will appreciate having a clear paper trail that saves them from digging through their inboxes to find old messages. In each email you send, include a link to the folder so that they can refer to previous messages as needed.

Informed investors are generally happier investors, and staying organized and proactive will make their jobs far easier. As such, they will be more likely to help you in the future.

Experienced Business Formation Attorneys

Wilson Ratledge assists clients in various aspects of business planning. There are numerous considerations to evaluate before making significant decisions for your business, especially when it comes to pursuing financing and working with investors. Our experienced business law attorneys can discuss your options and help you decide how to manage your business affairs. Contact one of our attorneys today at 919-787-7711.

Joint Bank Accounts: What You Should Know

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A common useful estate planning tool is a joint account, a situation whereby family members jointly hold an account with a “right of survivorship.” This means that when one joint owner passes, the other owner automatically takes ownership of the account funds. Under North Carolina law, these funds generally pass outside of the decedent’s estate. As such, joint accounts can be particularly useful for individuals who hope to help their heirs sidestep the probate process.

Still, the use of joint accounts warrants caution: Family disputes can easily erupt over the use and abuse of jointly held accounts.

A Common Dispute: Ownership of Funds

Although two (or more) individuals can jointly own an account, it does not follow that they jointly own the funds within the account. While this may seem like mincing words, it can seriously impact the proper use of account funds: A court may look askance at certain account transactions if challenged and as such, it is vital to understand who owns what funds in an account.

In these cases, context is key: In determining the ownership of funds within a joint bank account, courts consider factors like:

·  Who deposited funds into the account, and when;

·  The source of the funds (gifts, income, etc.); and

·  The intent of the person who deposited the funds, i.e., did that person intend the funds to be shared, or did he or she deposit a gift check or income for safekeeping within the account?

In some cases, funds deposited into a joint account are deemed shared, for instance, when the account holders are married and the funds comprise shared income. However, in other cases, funds may constitute the depositor’s sole property, for example, if an adult child is helping an elderly mother manage her finances. In the latter case, the mother would be deemed the owner of the funds, even though she shares the account with her adult child.

When Abuse Arises

Unfortunately, issues of ownership are often muddy and can lead to legal disputes.

Consider the example of an aging parent who asks his adult child for help managing his finances and makes her a joint owner on his bank account. Each month, the father’s pension and social security income is deposited into the account, and the daughter uses the funds to pay his monthly bills. However, as the months pass, the daughter starts to add a few extra items for herself to her father’s shopping list and even writes checks to herself from the joint account, erroneously believing that because she is a joint owner named on the account, she has the right to spend her father’s money.

Should the family end up questioning the father’s mental capacity one day, the sister’s conduct may be called into question: Did the father authorize these financial transactions? If so, how much? Did he even know about it? Did he intend for the funds to pass to his daughter by right of survivorship after his death? These types of questions leave family members in the difficult position of evaluating a sibling or parent’s conduct, which can often lead to familial strife and even legal action.

In considering how a joint account has been managed, courts will generally make a fact-intensive inquiry into who owned the funds, whether the funds were used in both account holders’ best interest, and whether the account owner approved of the use of the funds. These questions are particularly difficult to answer when one owner suffers from diminished mental capacity and can strain familial relationships.

Experienced Estate Planning Attorneys

Wilson Ratledge assists clients in various aspects of estate planning. There are numerous considerations to evaluate before making significant financial decisions, like adding a family member to a joint bank account. Our experienced estate planning attorneys can discuss your options and help you decide how to best manage your financial affairs. Contact one of our attorneys today at 919-787-7711 or via our contact form below.