The Risks of Joint Bank Accounts
One phrase that I frequently hear from clients in our office is some version of this: “My child is already on the bank account.” When I follow up and ask in what manner their child is on the account, the client can’t really explain what they mean.
This is because there are a lot of ways a person can be “put on” a bank account. They can be named as a beneficiary on a transfer-on-death or payable-on-death account. Or they can be named as an authorized signor on the account or assigned as an attorney-in-fact under a Power of Attorney document. Or they can be named as an owner of the account.
As we age, it’s natural to want to ensure our loved ones can access our finances if we become ill or pass away. To facilitate this, many people consider adding a family member as a joint owner on their bank accounts. However, this approach can lead to unintended and sometimes negative consequences.
Many financial institutions are becoming increasingly unwilling to simply “add” a son, daughter, niece, or nephew onto a bank account as an owner, and there are some good reasons for this hesitation.
I encourage my clients to consider alternatives to this for a multitude of reasons, the most important being:
Loss of control: Once you add someone to your account, they have equal rights to access the funds. They can withdraw money without your permission, potentially leaving you financially vulnerable.
Creditor risks: If the co-owner faces legal judgments or declares bankruptcy, your account could be at risk. Creditors may be able to seize funds from the joint account to satisfy the co-owner’s debts.
Medicaid eligibility: Adding a joint owner could be seen as a gift, potentially affecting your Medicaid eligibility if you need long-term care within five years.
Estate planning complications: The funds in a joint account typically pass to the co-owner upon your death, potentially bypassing your will and creating conflicts with your intended estate plan.
Tax implications: Large deposits into a joint account could trigger gift tax issues for the original owner.
Divorce complications: If the added family member goes through a divorce, your account could become part of their marital assets. This could lead to your finances being scrutinized in divorce proceedings or even partially awarded to your family member’s ex-spouse.
Instead of joint ownership, consider these alternatives:
Durable Power of Attorney: This legal document allows your chosen agent to manage your finances if you become incapacitated, without giving them ownership of your assets.
Payable-on-Death designation: This allows you to name a beneficiary who can access the account after your passing, without having rights to it while you’re alive.
Living Trust: This can provide for management of your assets during incapacity and smooth transfer upon death, while allowing you to maintain control during your lifetime.
These options offer more protection and flexibility than joint ownership. Every situation is unique, so it’s crucial to consult with an experienced elder law attorney to determine the best approach for your circumstances.
At Coyle & Eyman, we’re here to help you navigate these important decisions. Contact us today to discuss how we can help protect your assets and ensure your wishes are carried out.
