Although adding adult children to a bank account may seem like an easy hack for estate planning, attorneys point out that joint bank accounts can result in complications and unforeseen results. Here’s advice–and some tips for getting a real estate plan going.
Unintended Consequences?
The ease of ensuring access to assets by adding adult children (or other loved ones) to a bank account makes joint accounts tempting, but, attorneys at Sands Anderson offer these words to the wise:
Having a joint bank account with an adult child is deceptively attractive. It’s a simple process to add a joint owner, and it means that the joint owner can access those funds to pay bills, and that when you die the account goes to that joint owner instantly, without any extended legal process or court-supervised probate. Best of all, it’s free! So – what’s the catch? In practice, the downsides of using joint accounts as an estate planning tool are numerous. The two biggest problems are assets unintentionally going to the wrong people, and liability of the account should trouble come for the joint owner.
“Unintentional disposition of assets” can occur quite innocently, because, upon death, the assets in a joint account instantly become the property of the other individuals on the account. As attorney Benjamin Tiefenback points out:
When you make someone a joint owner of your account, one of the consequences is that when you pass away, the account becomes theirs alone, instantly. This means that the account will not be distributed according to your will or trust, which can be a significant problem if you have multiple beneficiaries.Furthermore, what happens when your joint owner passes before you? Where does the account go? In most cases, it will have to go through a court-supervised probate process, which in Virginia can take years if you’re unlucky, with the associated taxes and fees. Even if you make an account jointly with all your children, if one of them passes before you, you’ve accidentally disinherited that set of grandchildren – joint ownership will not automatically update in the event of a death, which is something you can do in a trust.
Of course family members may respect the intentions of the deceased, —as long as they actually know what those are. Still, further complications can arise if a joint owner of the account is faced with claims:
By making someone a joint owner, you have in essence made a gift to them of the entire value of that account. That means that if there is a wolf at the door for your joint owner, that wolf is going to be able to come after your joint account. If your joint owner gets in legal trouble, is sued, or goes bankrupt, among many other potential hazards, there is a very real possibility that the creditor will be able to garnish that joint bank account – even though you yourself had absolutely nothing to do with the problem! There may be defenses you can raise, but it’s a bitter pill to have to spend thousands of dollars defending yourself in court against something that you didn’t do.
Better Idea: Power of Attorney–and Estate Plan!
It’s essential to have a healthcare proxy and power of attorney (POA) in place. Officially assigning POA to a trusted friend or relation can prove vital in the event of emergencies or capacity declines, and attorneys remind us that it’s fairly easy to do: POA is “a brief, straightforward legal document that gives another person the authority to take legal and financial actions in your name, including accessing your accounts if necessary. However, the person acting under your Power of Attorney is not treated as an owner”—so the problems associated with joint bank accounts do not apply.
In addition to arming loved ones with a healthcare proxy and POA, it’s best to organize how assets will be transferred and to whom. Historically, this is the function wills have played–and wills can still be useful. It is increasingly common to go a step farther and establish a trust, which can be better tailored to address specific goals within a family. Sands Anderson explains: that a “revocable living trust” is “essentially a more modern form of a will, which can both transfer assets easily on death and also contain robust disability planning. You may also use a beneficiary designation on certain accounts, although that loses some of the other benefits of a trust.”
Communicate and Designate
Among the biggest mistakes made in estate planning is failure to clearly communicate intentions and arrangements to friends and loved ones. The resulting stress is ultimately harder on everyone involved–and can result in costly and conflict-ridden probate litigation. In addition to appropriately communicating our decisions and the practical information needed to carry them out (i.e. account details and digital access codes), periodically reviewing and updating the details associated with our estate plans is best.
When an estate plan is made, one or more fiduciaries are designated to administer our arrangements as spelled out in wills, trusts and other estate planning documents. Depending on the circumstances and location,a fiduciary may be specifically referred to as an executor, trustee or personal representative. Typically, adult children or other close friends or relations are designated, though it is also possible to appoint a professional fiduciary. It is important that whomever is designated understands the real responsibilities involved, and is prepared with the information needed to carry them out. Given the seriousness of their duties, executors, personal representatives or trustees are often required to secure estate bonds. Colonial Surety, a leading, national provider of all kinds of estate bonds, makes it easy and speedy to obtain them. Simply: get a quote online, fill out the information, and enter a payment method. Print or e-file the bond from anywhere.
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