If you’re starting to think about estate planning, the question of how to manage bank accounts inevitably arises. Creating joint accounts—where you and others share ownership of bank accounts—is an option that many consider. In fact, your banker may even recommend it.
If a banker suggests this, it must be a good idea. Right? With a joint account, your adult child—or whomever you add to your account—will have immediate access to your account in order to pay your bills should something unexpected happen to you. It seems convenient.
But that convenience comes with a price that you may not be willing to pay once you know the facts.
Did you know that by adding your adult child as an owner to the joint account, you are making YOUR money available to your adult child’s creditors? Think very carefully about this. If your child gets sued for divorce or gets sued for any reason, you will have to prove in a court of law that you only added your adult child’s name to your account for convenience purposes, not to give them true ownership rights.
Will you have the time and money to litigate this?
And then there’s the potential disinheritance factor, which few people think about. Let’s say that an elderly woman has three kids. She decides to put her oldest as a joint owner of her account. If the elderly woman dies unexpectedly, she could unintentionally disinherit her other two children. A good estate planning attorney can help you avoid this problem by creating a trust and having the beneficiary of that account be the trust so it can be divided among all the children.
In most cases, the best course of action is to give your adult child a financial durable power of attorney. Have the document drafted by an experienced elder law attorney, and then take it to the bank to make sure they’ll accept it. Do this now, when you’re in good health, well in advance of a crisis. Once the bank accepts the financial durable power of attorney, they’ll keep it on file for the future. Then, make your children or other relatives beneficiaries of your bank account if you’re comfortable with them inheriting the account outright. In addition to giving your designated person the legal authority to handle your account while you’re alive without subjecting that account to that child’s creditors, you will also avoid probate, which is always a plus.
When you’re deciding what to do, it’s important to remember that your banker is likely to recommend a course of action that is most convenient for the bank. And joint accounts are by far the easiest for banks to manage, easier than multiple signers and easier than multiple account beneficiaries, especially if there are a lot of them.
Just keep in mind that what’s in the best interest of the bank is not necessarily in the best interest of the account holder or his or her children. An experienced elder law and estate planning attorney will steer you in the right direction. If you would like some guidance, we’re here to help. Just give our office a call.