The time has come to address one of my biggest pet peeves, because it is relevant year-round, and despite providing lectures to banks about all the pitfalls, they still allow their customers to establish joint accounts with someone other than their spouse.

Let me start by noting that a joint account with your spouse is fine; and in fact, preferred, in many respects. For instance, Virginia allows spouses to own property as Tenants By the Entireties (TBE), which is similar to joint with rights to survivorship titling, but it is only available to a married couple. By titling an account as TBE, the owners can take advantage of a simple (though not flawless) form of creditor protection. However, TBE titling with a spouse is not generally problematic; rather, it is titling an account with someone other than a spouse that can cause a number of problems.

In most cases, the scenario starts innocently. For example, an elderly person walks into a bank and tells the teller they want their daughter to sign checks on their behalf. Thereafter, the teller adds the daughter’s name to the account so she can sign checks. We now have a joint account, and the daughter is considered an owner of that account. In most cases, this joint account will also avoid probate, which is another objective of the elderly person. This all sounds great – after all, we just avoided probate and negated the need for a power of attorney, right?

Unfortunately, this is where things can start to go horribly wrong. After all, the daughter is now an owner of the account, so let’s consider a few scenarios:

What happens if the daughter is in a car accident and gets sued, or has other creditors?

The funds in the account are at risk since the daughter is now an owner. While it may be possible to get the funds discharged from the claim, doing so will require the assistance of an attorney, which can get very expensive.

What happens if the daughter withdraws funds from the account?

The daughter can withdraw funds at any time since she is an account owner. However, when she withdraws funds there may be a gift that either falls under the annual gift tax exemption of the parent, or requires the filing of a gift tax return.

What happens if the daughter’s spouse withdraws all the funds from the account using a power of attorney over daughter?

This could be done legitimately, or maliciously; but either way, the bank will honor the spouse’s power of attorney and allow the withdrawal. In addition to the gift tax concerns above, the elderly person will be left to sue the daughter’s spouse, and may or may not win that suit.

What happens if the parent has to qualify for Medicaid?

Joint accounts can impact Medicaid eligibility, as most states assume the applicant owns the entire account regardless of the number of names on the account. Transferring money out of the account may also be problematic, as it may fall within the look-back period for Medicaid disqualification.

What happens if the elderly person wants to close the account?

The co-owner of the account must execute the account closure paperwork.

These are just a few examples of how joint ownership of a checking, savings, or brokerage account can go horribly wrong. The good news is that it is relatively easy to avoid all these problems by using signature authority, a properly crafted power of attorney, or a trust. Granting signature authority on an account is simple at most banks, and it is free. While a grant of signature authority is not a perfect solution (signature authority terminates at the death of the account owner, and does not avoid probate), it is still a better option than joint titling. A properly crafted power of attorney or trust agreement can offer a much more comprehensive solution, but it can take some time and effort to ensure this is done correctly; and this is where a competent estate planning attorney can provide invaluable assistance.

Speaking to an attorney or accountant who is well-versed in tax law will help you make the right decisions for your business and personal real estate investments. To learn more, please visit our Estate Planning & Administration page, or call Chuck McWilliams at (703) 680-4664.

A recent Fairfax County Circuit Court decision is a reminder that under Virginia law, if you or your company pays a demand “voluntarily,” you will not be able to seek reimbursement of those amounts, even if they were charged illegally or were unreasonable. Pursuant to a long-standing rule known as the “Voluntary Payment Doctrine,” where a party pays an illegal demand with knowledge of the facts which render it illegal, such payment is deemed “voluntary” and cannot be recovered back, even if the payment was made under protest, unless certain limited exceptions apply. In Boyer v. Cambra, CL2017-14969 (Fairfax March 15, 2018), the court applied the Doctrine and prevented a debtor from recovering attorneys’ fees she paid as part of the payoff of a secured promissory note, even if the fees were unreasonable.

After defaulting on a promissory note secured by her home, the borrower in Boyer agreed to sell the house to pay off the debt. Prior to closing with a third party purchaser, the borrower received a payoff amount from the lender, which included $23,702.02 in attorneys’ fees. The debtor believed the fees were unreasonable and she attempted to negotiate them but was unable to reach an agreement with the lender. Although the debtor felt the fee was unreasonable, she did not want to breach the purchase agreement with the third party purchaser and therefore paid the full amount, under protest, at closing. She subsequently sued the lender seeking repayment of all or a portion of those fees and attempted to argue the fees that she paid were unreasonable.

The debtor recognized that the Voluntary Payment Doctrine presented a problem for her case, and she asserted that one of the Doctrine’s exceptions applied. Specifically, she argued that there was “an immediate and urgent necessity” for paying the fees because the lender had threatened to foreclose on her home. The court, however, rejected this claim because it found that the debtor had options other than paying the fee, including bringing suit prior to closing or interpleading the funds prior to the foreclosure. The court closely scrutinized the debtor’s actions and her options prior to paying the fee. In addition, the court reiterated well-established Virginia law that paying the fee under protest does not render the payment involuntarily.

This ruling highlights that when a party is faced with a demand that it believes is illegal or unreasonable, that party must exhaust all of its options to dispute the fee prior to making the payment, including filing suit. The party cannot simply protest the fee, make the payment, and then challenge the legality or reasonableness of the fee at a later date. Even where there is a bona fide argument that the fee is unreasonable, such an argument must be raised prior to paying the fee, otherwise the argument is lost.

If you or your company believes a demand is illegal or unreasonable, it is important to consult an advisor to discuss all options prior to paying it. In most circumstances, once the payment is made, it will be impossible to challenge the payment.

For more information please consult our Business Transactions attorneys.

This fall, the Alexandria team received two exciting approvals from City Council – a 141-room hotel conversion in Old Town and a 332-unit senior living facility in Potomac Yard.

699 Prince Street Hotel

When May Riegler Properties purchased the building at 699 Prince Street last year, they had a vision to restore the beautiful six-story historic building back to a hotel. Originally built in the 1920s as the George Mason Hotel, the building had been converted to office use in the 1970s and an above-grade parking structure was constructed next to the building to serve the office use. In September, the City Council unanimously approved the proposed hotel project, including the conversion of the existing building and a four-story hotel building to replace the existing parking structure. The elimination of the parking structure, the construction of a new hotel building that meets the standards for development along the George Washington Memorial Parkway, and the restoration of the existing building will be a big win for historic preservation and economic development in Alexandria. The new hotel, to be operated by Aparium, will feature an activated alley with a pedestrian-friendly “mews” feel, an elegant ballroom space, a ground floor restaurant, and a rooftop bar and event space. From the roof, patrons will be able to look out over Old Town Alexandria and the waterfront, offering unparalleled views of the Potomac River and Washington, DC.

The development team included architects from Antunovich, engineers from Bowman Consulting, landscape architects from Studio39, and traffic consultants from Gorove/Slade.

Landbay H-West – 2601 Main Line Boulevard

The growing demand for senior living facilities doesn’t seem to be letting up any time soon. The developer for this exciting project, Silverstone Senior Living, has experience delivering high-quality senior living facilities in Northern Virginia and across the country, and is now expanding their portfolio in Alexandria’s Potomac Yard.

Located on a vacant two-acre site along Route 1 that was formerly designated for office, the proposed senior living facility will contain approximately 186 assisted living/memory care units and a 12,000 square foot pharmacy in the south building and 146 independent living units in the north building. This senior living facility further diversifies the mix of office, residential, and retail uses planned for Potomac Yard, and the new buildings will provide amenities and services for residents across the continuum of care. Several courtyards and outdoor terrace spaces will allow access to green space for the public and residents, including a wander garden specifically designed for memory care residents. Additionally, the project includes seven dedicated deeply affordable units for low-income seniors.

The development team included architects from Perkins Eastman, engineers from Bowman Consulting, landscape architects from ParkerRodriguez, and traffic consultants from Wells & Associates.

On October 16, 2018, the Fairfax County Board of Supervisors approved K. Hovnanian Homes’ rezoning request to construct a 219-home community on 18 acres located north of the Pender Village Shopping Center along Route 50 in the Fairfax Center area. The new neighborhood, which will replace an aging office building and parking lot, will include 91 townhomes, 56 stacked townhomes, and 72 multifamily flat condominiums.

The impetus for the project finds its genesis in the Fairfax Center Phase II Special Study, which was adopted by the Board of Supervisors in 2016. For more than three years leading up to the study’s approval, K. Hovnanian worked with County staff to develop comprehensive planning text that conceived a new neighborhood as an alternative to the property’s existing commercial use. The proposed community was specifically designed to implement the new planning recommendations. As approved, the neighborhood will serve as both a logical extension of the existing shopping center as well as provide an appropriate transition to surrounding residential neighborhoods.

The community’s architecture is intended to complement the shopping center’s architectural treatment and create the appearance of a more unified, organic mixed-use development. Cognizant of the site’s location adjacent to established residential communities, K. Hovnanian’s design provides substantial landscaping, buffers, and open space. Nearly half of the property will be designated as open space, and 20 percent will be preserved for tree preservation. Housing affordability—a key planning goal—also figured prominently into the overall design, and the project will provide 10 Workforce Dwelling Units and 16 Affordable Dwelling Units.

The neighborhood will offer multiple open space amenities, including a 17,400-sq. ft. landscaped courtyard to serve as a central gathering space for residents and shopping center patrons. A large central green interior to the site will provide room for a tot lot, swimming pool, bathhouse, and open lawn. A quiet, contemplative garden at the northwest corner of the property will also be provided. The design also features a coordinated pathway system linking the property to the shopping center, as well as other community elements such as fire pits, specialty landscaping, and benches.

Prior to the unanimous approval by the Board of Supervisors, the project received recommendations of support from County staff and the Planning Commission. Walsh Colucci Lubeley & Walsh attorney Andrew Painter represented K. Hovnanian before the Board of Supervisors.