Use Joint Bank Accounts With Caution

By: Robert J. Kurre, Esq.

Many seniors have set up their bank accounts to be joint accounts – that is the account is titled in their name as well as the names of one or more of their children. They often do this for convenience purposes so their children will be able to write checks to pay the senior’s bills. Many seniors have also put their assets into joint bank accounts in order to avoid the probate process (i.e., the process whereby assets pass through a Will which requires that the Will be filed with and approved by the court). There are, however, many considerations which seniors often do not realize which can make the use of joint bank accounts a poor planning technique for elder law and estate planning purposes.

First, by adding a child’s name to the senior’s account, the funds become exposed to any claims that may exist against the child. For example, any of the child’s creditors may be able to reach the money. Second, the senior runs the risk that the joint owner of the account will withdraw money from the account and use it for unintended purposes as each owner of a joint account generally has full access to the funds. Third, the joint ownership of the account does not provide any protection for Medicaid purposes as the account is considered to be 100% the funds of the Medicaid applicant (i.e., the senior) unless documentation can be provided demonstrating that the child actually contributed to the account. Fourth, for estate tax purposes, when a parent and child jointly own a bank account, the funds are considered to be completely part of the taxable estate of the first joint owner to die except to the extent it can be documented that the surviving joint owner deposited funds into the account. Therefore, the funds could be included in the taxable estate of a predeceased child as it may be difficult to document that the account only contained the senior’s money. Fifth, this is a “hotspot” for litigation in that if all of the beneficiaries of the senior are not added to the account’s title as joint owners, there may be an unequal passing of assets to the beneficiaries. The one child whose name is on the joint bank account often argues that the senior intended that he or she would receive extra consideration due to the assistance that child provided.. The other children may argue that the senior wished to treat all the children equally and that the one child who was named as the joint owner should now share the proceeds of the account. To rely on beneficiaries to adjust a senior’s estate plan by re-distributing the proceeds of a joint bank account “fairly” is to risk not only costly litigation but also family disharmony.

There are other techniques which are usually preferable to the use of joint bank accounts for elder law and estate planning purposes. A qualified elder law and estate planning can determine the most appropriate planning technique after a thorough review of your situation.