WHAT IS THE MEANING OF “OR?”

Do you remember a few years ago during the investigation of the sitting president when certain questions were asked and incredible non-answers were given? When one response came: “It depends on what the meaning of ‘is’ is,” you just knew that the editor of Bartlett’s Familiar Quotations was busy scribbling that one down for inclusion in a future edition.

Well, in politics, as in the law, words matter. And one word that matters a lot is the word “or.” We see it on bank accounts and brokerage accounts all the time, and it has great significance. Recently, in Merlini vs. Department of Public Welfare, the Pennsylvania Commonwealth Court was asked to review a case involving savings bonds titled in the name of an applicant for nursing home assistance and her son, connected by the word, “or.” The question was whether or not the value of the bonds should be counted as a resource for Mrs. Merlini, which would mean that she would be ineligible for medical assistance for a few months, and she would have to redeem the bonds and pay her nursing home expenses until she reached the threshold when Medicaid would start to pay. The case reached this conclusion:

When two names are listed on a security joined by the word “or,” that security “shall confer on each owner an undivided interest in the security and shall create a conclusive right of survivorship.” This undivided interest conveys on the co-owner the right to enjoy the total value of the security or to collect 100% of its value on redemption.
“If the applicant can dispose of all of the asset without the consent of the other owner, the applicant’s share of the resource is presumed available for determining her eligibility for nursing home assistance.”

This conclusion appears to be well reasoned, but it also gives you an indication that the intent of the people setting up the account in the first place will not always be heeded. Here, it was clearly the intention of Mrs. Merlini to make sure her children inherited something from her after she died. But because the account was set up with the word “or,” and because certain other things were not done properly, the money did not go to the children.

Parenthetically, the amount of the bonds was $10,500. I wonder how much the Merlinis spent on legal fees to try to protect that money. My guess is about $5,000. And furthermore, how far will the Department of Public Welfare go to make a point over $10,500? All the way to the Commonwealth Court, I guess.

Another word that matters is “and.” This can have different meanings depending on what account you are talking about. For instance, if I open a bank account with you, and we list our names with the word “and” between them, it can mean that we both have to sign all checks. It also means that when we close the account, or make any withdrawals, the check will be made out to both of us. Then we both will have to sign that check in order to get the money.

Such an account can be useful if used by a parent and a young child who still may need some guidance on how to handle money. By restricting the access to the money, the parent will be able to prevent the child from making a mistake. But it also means that both people must agree on the transaction, which might cause other stress. It is inconvenient to have both signatures on checks, especially if one person is away at college.

I am often asked about putting money in jointly-named accounts. The benefits are:

1. Convenience of access to the money by either party, especially for the payment of routine bills.

2. Immediate access to the money when one party dies, most times for the payment of the funeral costs.

3. Reduced inheritance tax on the money in the account, typically a reduction of one-half of the tax.

The drawbacks can also be significant, though, and should be carefully scrutinized before adding a name to an account:

1. Convenient access to the money by either party may result in one party deciding to help himself to the money without the other person’s knowledge or consent.

2. Immediate access to the money at death carries no obligation to use it for the payment of funeral expenses or medical bills, nor does it obligate the survivor to share the money with anyone. Promises made between parties in private may not be remembered after one party dies.

3. If a joint owner of an account should die, get divorced or get sued, that account is subject to possible seizure to pay someone else’s obligations. And, as we learned from the Merlini case above, if one joint owner goes into a nursing home and applies for Medicaid, the value of the money in the joint account may have to be spent down in order to qualify, thus defeating the other purposes.

Once again, even though this topic of whose names should be on the account may seem simple, and often times the clerk at the bank will offer free advice, that advice may turn out not to be worth the price. Talk to your attorney. The investment of a few dollars for a consultation can pay huge dividends.

Chris Abernethy is an Elder Law attorney in the North Hills, and concentrates his practice in estate planning, probate, wills, trusts, powers of attorney, living wills and real estate. He is a member of the National Association of Elder Law Attorneys and a charter member of the AARP Legal Services Network.