Think Twice Before Sharing A Bank Account
I regularly see elder clients who have added their adult children as a joint account holder on their bank account. This allows the child to assist with activities such as paying bills or balancing the checkbook and gives them access to funds that may be needed for the parent’s care.
Likewise, sometimes parents will share a bank account with their teenage or college-bound children as a way to easily transfer funds or keep an eye on spending.
Sharing a bank account is quick and easy. Usually, it just requires a trip down to your local branch office with the account holder and you can walk out as joint account holders. Unfortunately, what the local banker may not tell you is that sharing a bank account can be a risky venture and bring about many unintended consequences. Here are a few to consider:
- Creditor Liability- If the joint account holder incurs a debt, their creditor could look to the funds in the account to satisfy that liability. This means the parent’s funds are put at risk to satisfy debts that aren’t theirs. This may make you think twice about sharing an account with your college age child or an adult child that is going through a difficult time in their business or personal life.
- Accidental Disinheritance of Other Children - Typically, upon the parent’s death the funds in a jointly held account would go to the co-owner of that account, regardless of what the parent’s estate planning documents may say. This could result in the unintentional disinheritance of their other children and a lot of hurt feelings and family discord.
- Ineligibility for Financial Assistance - Many benefit programs including some student loans, scholarships, subsidized health insurance and programs like Medicaid are based on financial need. Funds that are in a jointly owned account, even though you don’t consider it “your money,” may be taken into consideration and thus make you or your dependents ineligible for certain programs.
A Better Way
As a general rule, I do not recommend clients share a bank account with anyone other than a spouse. (Florida law generally provides special protections for spouses who share accounts - but more on that later.) The better way to allow someone to access your finances to assist with paying bills and the like is through the use of a Durable Power of Attorney.
A Durable Power of Attorney allows you to appoint someone to assist in handling your personal or financial affairs in the event of your illness, absence or incapacity. This is probably the single most important document of an estate plan. The beauty of a Durable Power of Attorney (as opposed to a standard Power of Attorney) is that it survives a subsequent incapacity. This means that if something happens to you later in life and you become incapacitated either due to accident or illness, The Power of Attorney remains active and your fiduciary continues to have the power to help manage your financial and personal affairs. The Power of Attorney laws have changed significantly in the last few years so if you have an older document (especially if it was made prior to 2012) it may be time for an update.
During an initial estate planning consultation with clients, I typically review their assets including their accounts and how they may be titled and can identify areas of concern such as joint account ownership and advise of better ways to handle things. If you’d like to discuss your situation please contact my office to get started.