|Catherine E. Sears, Esq.|
Frequently, clients tell me that they have certain assets (often, a checking or savings account) titled jointly with one or more of their children.
“This way,” they tell me, “my daughter can step in and pay my bills if something happens to me.”
Nearly always, when I ask whose idea this was, the client informs me that an employee at the bank said that this was the best way to allow family members to help in case of a crisis. However, at the risk of irritating any bankers reading this blog, I can say with complete certainty that naming someone as a co-owner is NOT the best way to give another person access to your finances. Instead, you should name your child as your agent under a Durable Power of Attorney.
When a bank account is jointly owned, legally, that bank account belongs to both of the co-owners. This means that your child can do whatever he or she wants with that money, and is not bound by any legal obligation to use the money in your best interests. Even if you trust that your child would not go on a shopping spree with your money, your account can still be subject to your child’s creditors if, for example, your child gets into a fender-bender and gets sued, or if he goes through a divorce. Additionally, co-ownership often creates a “right of survivorship.” This means that, upon your death, the entire bank account will belong to your co-owner child, regardless of the provisions in your will or revocable living trust which may state that your assets are to be divided equally among all of your children.
I recently had a client who had named her adult child as co-owner of her checking account many years ago. In fact, this happened so long ago that the bank no longer had records showing that the account had, at one time, been titled in my client’s sole name. Sometime after adding her child as co-owner, the client’s child developed a disability, could no longer work, and began receiving Supplemental Security Income (SSI) and Medicaid. Both of these programs are means-tested, which means that the child could only receive these benefit programs by meeting certain financial eligibility requirements. The child had been receiving these benefits for several years, and these programs were the child’s sole source of income and health insurance coverage.
Recently, though, the Social Security Administration learned that the child was co-owner on my client’s checking account. Though my client was by no means wealthy, she had money in the account in excess of the low limits which are required to maintain SSI and Medicaid coverage. The child’s benefits stopped, which was problematic because the child had a home-health aide, who had been paid through the Medicaid coverage, and this left my frail, eighty-something year-old client in charge of providing very physically-demanding care to the child. Additionally, the child received word that he owed tens of thousands of dollars to the Social Security Administration because, due to this co-owned account, he should never have been eligible to receive these benefits.
I was heartbroken to learn of this situation, because the family’s problems would have been solved if the client had not listened to the bank employee all those years ago and had simply executed a Durable Power of Attorney naming the child as her agent. Then, the child would not have any legal claim to the money in the client’s account. If the client had needed assistance, the child could simply have paid bills by showing a copy of the Durable Power of Attorney and by signing “Child’s Name, POA for Client’s Name.” This also would have held the child to the fiduciary standard, which means that, if he had happened to misuse the client’s money, he would have gotten in trouble for it.
So, please learn from this family’s mistake. Nobody knows what the future will hold; clearly, this client thought that she would be the first family member to need help, not her child. If you ever have any doubts about the proper way to title any type of asset, consult an experienced estate planning or elder law attorney – not just the person sitting behind the counter at the bank.