Unintended Consequences of Joint Bank Accounts

February 13, 2020

As parents age, they may need more and more assistance in managing their financial affairs. Adult children frequently step in to offer this assistance. We often see in this situation, adult children go to the bank with a parent and ask to be added to the bank account. This gives the adult child access to the money to pay bills to make sure everything is paid on time. They are also able to oversee the parent’s spending and ensure no fraud takes place. While this all sounds good, there are many unanticipated consequences that arise out of joint bank accounts.

Joint account ownership means that each person has full access to the account to spend and transfer money without the consent of the other co-owner. The bank has no recourse to help a co-owner who is upset with any transactions made by another co-owner.

These accounts are typically set up with Right of Survivorship provisions. This means that when one owner dies, all of the money in the account transfers solely to the other owner and bypasses probate. This may be problematic in that the owner did not intend for these assets to pass outside of probate, but was hoping and expecting those assets to be distributed as set forth in a will.

If one co-owner has financial hardships such as garnishments, liens or judgments, these joint accounts may be subject to creditors.

Being listed on a joint account can impact the Medicaid application process as well. The entire amount will be attributed to the applicant regardless of who deposited the money, as if it was an individually owned account. Removing someone’s name from the account will also be subject to Medicaid’s look-back period.

In these situations, it is often better to have the parent execute a financial power of attorney and name the adult child (or another trusted person) as the agent. This allows that person to assist in managing financial affairs without being subject to some of these unintended consequences of using a joint bank account.

For assistance in helping you manage the financial affairs of a loved one, please contact the estate planning law firm, Stouffer Legal at 443-470-3599 in the Greater Baltimore area.

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