The Pitfalls of Joint Accounts

Joint Account

Elderly parents often put their children’s names on accounts because they want their children to be able to pay their bills if they can’t, and so the account goes to the child upon their death. However, joint ownership is seldom the best tool for accomplishing these goals.
Banks often recommend joint ownership; however these recommendations seldom consider all of the legal ramifications of this type of ownership.

One unintended consequence can be that it will thwart the elder’s estate plan.  If there are other children, upon the parent’s death the money in the account automatically goes to the child whose name is on the account, thereby disinheriting the other children. The funds in the joint account are now owned equally by the parent and the child. This means the child can draw out the money at any time without the parent’s consent. Most parents can’t believe that their child would ever take the money without consent.  However, it happens.
Likewise, because the money in that account belongs to both parent and child, the money may be attachable for the child’s debts.

This means that: If the child is at fault in a fatal accident;If the child has an unexpected catastrophic medical expense, or If the child gets a divorce, the money or property in the joint account could be tied up or taken by the injured party, creditor, or the divorcing spouse.
The elder cannot claim that the money his alone, because it’s not. By adding a child’s name to an account, the money is freely available to the child. If it is available to the child, it’s also available to the child’s creditors.
What about the nursing home? Money in joint accounts is not sheltered. For Medicaid purposes the government counts all of the money in the joint account as available for nursing home care. There may also be adverse tax consequences. This article won’t discuss those.

If you are concerned about having a child pay your bills in case you become disabled, go to the bank and give your child signature authority on your checking account. Your child will be authorized to pay your bills. Your child cannot use your money in ways that aren’t for your benefit. And the money is not available to your child’s creditors. This can also be done with a durable power of attorney.

If you are concerned about the bank account or stocks being tied up in probate, add a “Payable on Death” provision to your bank or stock account. The “POD” is like a life insurance beneficiary designation. The money or property in the account is paid directly to your beneficiary and bypasses probate.  Establishing POD accounts can also thwart your estate plan so you should be mindful to consider the overall estate plan and ability to utilize all of your funds prior to establishing these accounts.

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