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| 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.
