Joint pain | Sands Anderson PC
A big part of my job as an estate planning attorney is speaking with clients to fully understand their assets, family and planning goals so that I can help them achieve those goals. Something I hear frequently, which fills me with dread every time, is a variation of “Oh yes, I put my son in my bank account”.
Having a joint bank account with an adult child is deceptively attractive. It’s a simple process to add a co-owner, and it means the co-owner can access those funds to pay bills, and when you die, the account instantly reverts to that co-owner, without any lengthy legal proceedings or probate overseen by a tribunal. Best of all, free!
So what’s the problem ? In practice, the disadvantages of using joint accounts as an estate planning tool are numerous. The two biggest issues I see are assets unwittingly going to the wrong people and account liability if something goes wrong for the co-owner.
1. Unintentional disposal of property
When you make someone a co-owner of your account, one of the consequences is that upon your death, the account becomes yours, instantly. This means that the account will be not be distributed according to your will or trust, which can be a significant problem if you have multiple beneficiaries.
Also, what happens when your co-owner dies before you do? Where is the account going? In most cases, it will have to go through a court-supervised probate process, which in Virginia can take years if you’re unlucky, with associated taxes and fees.
Even if you create a joint account with all of your children, if one of them dies before you do, you accidentally disinherit that set of grandchildren – the co-ownership will not automatically update on death, which you can trust.
2. Liability of the co-owner
By making someone a co-owner, you’ve essentially gifted the full value of that account to them. This means that if there is a wolf at the door for your co-owner, that wolf can go after your joint account.
If your co-owner gets into legal trouble, is sued, or goes bankrupt, among many other potential risks, there is a very real possibility that the creditor could seize that joint bank account – even if you yourself had absolutely nothing to do with the problem! There may be defenses you can raise, but it’s a bitter pill to have to spend thousands of dollars defending yourself in court against something you didn’t do.
There are times when a condominium is the right choice, but they are rare. What should you do instead?
First, you need to sign a power of attorney. It is a short and simple legal document that gives another person the power to take legal and financial action on your behalf, including accessing your accounts if necessary. However, the person acting under your power of attorney is not treated as an owner, and none of the above threats apply.
Second, you should find a better way to route the account to your beneficiaries upon your death. There are many ways to do this. One of the best is to use a revocable living trust, essentially a more modern form of will, which can both easily transfer assets upon death and also contain solid disability planning. You can also use a beneficiary designation on some accounts, although this loses some of the other benefits of a trust.
Which specific tool is ideal will depend on the specifics of your situation. If you have special needs beneficiaries, for example, the right tool for the job will definitely be some sort of trust, not a beneficiary designation.
You can avoid a lot of heartache by planning ahead. Take the time to speak with a professional and understand your options so you can make an educated and educated choice.