When completing your estate plan, it is very important to review how your assets are titled so that you know who has access to them during your life and to whom they will be distributed when you die.
Some questions to ask include:
- Are your financial accounts separate or joint?
- Is someone added to your account as power of attorney, authorized signer, or as a joint owner?
- If you have a living trust, is the account titled in the name of the trust, or is it in your name for transfer on death to the trust?
- If you own real estate jointly with your spouse, does the deed contain language that it is owned with the right of survivorship?
Understanding Joint Accounts
Bank accounts, real estate, stocks, and bonds are commonly owned jointly with right of survivorship. When an account is jointly owned, all joint owners are considered equal owners of the account, regardless of who contributed money to the account.
Advantages of Joint Accounts
- Assets owned jointly with the right of survivorship pass automatically to the surviving owner(s) without going through probate court.
- A co-owner of a financial account can typically access the money in a joint account without approval from the court or any other person.
Disadvantages of Joint Accounts
- You lose complete control of financial accounts when someone else is a joint owner. The joint owner can use the money for his or her personal needs even if the joint owner did not contribute the money to the account.
- The account may be subject to claims of creditors of each joint owner. Therefore, if a co-owner gets into financial trouble, your assets could be in jeopardy.
- A joint account sometimes results in an unintended and unequal distribution of assets since the surviving joint owner does not have to count the joint asset as part of his share under the will or trust.
- The act of adding someone as a joint owner on a financial asset could be treated as a gift to that individual. This gift could prove problematic if the elderly parent seeks to qualify for long-term care through Medicaid within five years of making this gift
Joint Accounts vs. Power of Attorney
The two most common ways to have someone legally assist you with your finances, outside of a court-supervised guardianship, are to (1) designate an agent as your financial power of attorney or (2) add a person as a joint account holder. It is very important that you understand the difference between the two methods.
Power of Attorney - When you execute a financial power of attorney and designate someone as your agent, your agent must use your assets only for you. Your agent’s authority to act under a power of attorney ends upon your death. Therefore, your agent has no authority to use your assets after your death.
Joint Account - When you add someone as a joint account holder, your co-owner has full access to the funds and can legally use the asset for his or her own personal needs. Upon your death, the asset passes to the surviving joint owner by operation of law, regardless of who would receive the asset under state law or via the owner’s estate plan if the account not been joint.
