Many people, especially seniors, see joint ownership of investment and bank accounts as a cheap and easy way to avoid probate since joint property passes automatically to the joint owner at death. Joint ownership can also be an easy way to plan for incapacity since the joint owner of accounts can pay bills and manage investments if the primary owner falls ill or suffers from dementia. These are all true benefits of joint ownership, but potential drawbacks exist as well:
Risk. Joint owners of accounts have complete access and the ability to use the funds for their own purposes. Many elder law attorneys have seen children who are caring for their parents take money out of the joint account for their own expenses without first making sure the amount is acceptable to all the children. In addition, the funds are available to the creditors of all joint owners.
Inequity. If a senior has one or more children named on certain accounts, but not all children, some children may end up inheriting more than the others upon his/her death. While the senior may expect that all of the children will share equally, and they often do in such circumstances, there’s no guarantee. People with several children can maintain accounts with each, but they will have to constantly work to make sure the accounts are all at the same level, and there are no guarantees that this constant attention will work, especially if funds need to be drawn down to pay for care.
The Unexpected. A system based on joint accounts can really fail if a child passes away before the parent. In such circumstances, it may be necessary to seek guardianship over the parent to manage the funds, or the funds may ultimately pass to the surviving siblings with nothing, or only a small portion, going to the deceased child’s family. An example would be a mother who put her house in joint ownership with her son to avoid probate and Medicaid’s estate recovery claim. If the son were to die unexpectedly, the daughter-in-law would be left high and dry despite having devoted the prior six years to caring for her husband’s mother.
Medicaid Availability. Joint bank accounts are typically considered available assets for Medicaid eligibility purposes. For example, a joint bank account held by a mother and daughter would be presumed by Medicaid to be owned entirely by the mother. A better option would be to have assets held in a Medicaid Irrevocable Asset Protection Trust which, if drafted properly, would not only avoid probate, but would ensure that the assets not be considered the senior’s assets for Medicaid eligibility purposes.
Estate Planning. Joint accounts will typically be considered a part of the senior’s taxable estate. If there is a taxable estate, more sophisticated planning options should be considered.
Joint accounts do work well in two situations. First, when a senior has just one child and wants everything to go to him or her, joint accounts can be a simple way to provide for succession and asset management. There are some of the risks described above, but for many clients the risks are outweighed by the convenience of joint accounts.
Second, it can be useful to put one or more children on one’s checking account to pay customary bills and to have access to funds in the event of incapacity or death. Since these working accounts usually do not consist of the bulk of a client’s estate, the risks listed above are mitigated.
For the rest of a senior’s assets, trusts (revocable and/or irrevocable), wills, and powers of attorney are much better planning tools. They will usually not put the senior’s assets at risk. They provide that the estate will be distributed as the senior wishes without constantly rejiggering account values, or in the event of a child’s incapacity or death. Further, such documents should provide for asset management in the event of the senior’s incapacity, estate planning and long-term care issues that may arise in the future.
Ronald A. Fatoullah, Esq. is the founder of Ronald Fatoullah & Associates, a law firm that concentrates in elder law, estate planning, Medicaid planning, guardianships, estate administration, trusts, wills, and real estate. The law firm can be reached at 718-261-1700, 516-466-4422, or toll free at 1-877-ELDER-LAW or 1-877-ESTATES. Mr. Fatoullah is also a partner of Advice Period, a wealth management firm, and he can be reached at 424-256-7273.