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Joint Control Agreements – A Fiduciary’s Responsibility to the Estate

Here’s the scenario:  You represent a fiduciary of an estate.  You want to make sure she is properly appointed and bonded, and then you want to move onto other cases.  Right?  Not so fast!

The fiduciary has an ongoing responsibility to the estate.  As her attorney, you have an ongoing duty to advise her.  If she makes unauthorized expenditures or imprudent investments, you could be on the hook if you were negligent in that duty.

That’s where a Joint Control Agreement (“JCA”) can be a useful tool.  And if set up properly, a JCA will help you fulfill your obligations while limiting your oversight time and your exposure.

How it works:

The JCA requires two accounts: 1) the Principal Account, which requires two signatures for any withdrawals (i.e. you and your client), and 2) the Working Account, which the fiduciary has full access to for paying ongoing expenses.  These accounts may be established at the bank of your choice.

You start by assisting your client in opening the accounts and developing an estimated budget for the first year’s expenditures from the estate.   The principal account is then funded with the majority of the assets of the estate.  The working account is funded with enough money to cover the first year’s budget.  (Note:  Don’t forget about the Prudent Investor Act.)

Thereafter, the working account is funded annually to cover the budgeted expenses for the following year.  The fiduciary is already required to file an annual accounting for the court.  In conjunction with that filing, she will also develop a budget for the following year’s expenses  (reasonable estimates are adequate.)  A transfer is then made from the principal account into the working account to cover the annual budgeted expenditures.

How you benefit:

The JCA helps organize and focus your efforts, thus minimizing the hours you spend.  You will assist your client with setting up the accounts initially and with the annual accounting and budgets.  Typically, the only additional time you will devote to the estate is if and when an unusual or unexpected expense is incurred that requires your joint signature to withdraw additional funds from the principal account.

With a minimal amount of time spent, you will know what’s going on with the estate and you will have an opportunity to advise your client at all the critical times.  Your risk of committing negligence is minimized by the built-in oversight procedures, and your monetary exposure is significantly reduced by placing most of the estate’s funds out of the reach of your client.

What about fees?  In most cases where a JCA is implemented, the amount of time you spend is predictable and reasonable, and your fees can be paid under the statutory fee allowance.

Don’t take the chance of letting things get out of control!