VOL. 125 | NO. 131 | Thursday, July 8, 2010
Avoiding Joint Bank Account Risks
RAY and DANA BRANDON
Dana and Ray Brandon
Ray’s Take: I’ve talked to many clients whose bankers or adult children suggest they add the child’s name to their bank accounts. The rationale is that if anything happens to the parent, such as illness, injury or death, the child can instantly access the money to pay bills.
One driver behind this is horror stories about lengthy and expensive probates.
Another fear is that during a prolonged hospital stay, the mortgage, car payments and credit card payments are missed. While the parent may recover, the credit score doesn’t.
In most cases, I advise against adding a child to joint bank accounts. Here are some reasons why:
If a child’s name is on the account and the parent dies, the child has unchallenged control. In effect, this disinherits other heirs from money in the account.
The child listed on the account has an equal right to the money and can spend it however he or she wishes, with or without permission. Most parents cannot imagine their child “stealing” from them, but sadly it happens.
If the child has debts or obligations, the money in the account is considered part of the child’s assets. It might be put at risk in a custody battle, bankruptcy case, lawsuit or divorce.
Joint accounts cannot “shelter” money during the Medicaid application process. The entire account is used to determine whether or not the parent can qualify for Medicaid to pay for a nursing home.
There could be adverse tax implications for you or your child.
A Revocable Living Trust (RLT) can be a better choice and can solve additional issues.
You also can add a payable upon death (POD) provision to your bank account or securities account. This is similar to naming a life insurance or IRA beneficiary. The money in the account is paid directly to your beneficiary, bypassing probate.
Dana’s Take: As moms and dads show signs of age, adult children can become anxious and stressed. Often the focus of that anxiety is money.
That’s when everyone in the family has an opinion about what mom or dad should do with the money. And, some family members can be very pushy.
Allow your financial planner, CPA or lawyer to handle it. Schedule a meeting with your adviser and adult children to discuss what to expect in the event of serious illness.
Everyone will rest easier knowing procedures are in place to manage your financial obligations. Having a trusted professional in charge can also preserve relationships between siblings when the going gets tough.
Remember, hiding assets to qualify for Medicaid’s nursing home assistance is illegal and Medicaid can “look back” at your financial records for three to five years.
Always consult with your financial planner or attorney before signing anything.
Ray Brandon is CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, is a Licensed Clinical Social Worker.