Here we are on a chilly Saturday in Staten Island, NY and as I ponder some of the more common elder law questions that I get asked this one pops out as one that I have been hit with a lot lately.
There comes a point in the life of many seniors where they simply cannot adequately manage their finances anymore. Often the signs are subtle, like a missed phone bill payment, or often more dramatic, such as a company showing up to repossess a car that has stopped having payments made on it . In an ideal situation the senior will realize that a problem exists and seek assistance from a trusted relative, most often their child. Unfortunately this is not always how seniors realize that they are no longer able to manage their own affairs. As such, and before it’s too late, it is important to have a trustworthy person authorized to manage the finances of a senior in the event that such management becomes necessary. This conversation often occurs during an initial elder law consultation in my office.
Using what they believe to be their best common sense, many seniors add a relative other loved one as co-owner on bank and brokerage accounts. This can be an easy and convenient way of managing those assets and making sure bills get paid on time. There are however many risks and potential consequences of joint ownership, and please understand that there are other available alternatives that may be more in line with their objectives but which would still really give them a peace of mind in terms of the protection of their assets.
Initially, it is imperative to know exactly what it means to hold a joint account with another person. In short, understand that a joint owner will have complete access to your bank account and has the right to make an unlimited amount of withdrawals of ALL money in the account and not just the amount that any joint account holder has deposited, with our without your prior approval. This is why it is imperative to name an individual who you truly believe will act in your best interest.
Also, when you die, the assets in a jointly-owned account will automatically become the property of the surviving owner and NOT subject to the distribution wishes explained in any will or other testamentary distribution advice. While this can be a desirable and convenient way of gifting assets at death, holding a joint account with one beneficiary can be a terrible idea if your intention is for the money to pass to someone else, or to be divided among several beneficiaries according to the terms of your testamentary distribution vehicle (i.e. will). If you read that paragraph and think to yourself: “Well that will never happen in my family, all of my children know to split the money evenly”, I urge you to consider the fact that in the many contested estates that I have handled, over 80% contain an issue involving money held in a joint account.
One thing that even experienced professionals fail to consider is that once your co-owner’s name is on the account, your money will be vulnerable to his or her creditors. Remember, the money in a joint account fully belongs to each account holder. For instance, if one party to the account goes through a divorce, has a business failure, or gets sued, ALL of the money in the account may be available, regardless of how, when or by whom it was deposited.
I would be remiss if I didn’t also mention the possible implications of a jointly held account on someone who is applying for Medicaid (As an elder law attorney I just can’t resist!) Many people falsely believe that Medicaid will view a joint account as being owned half by the Medicaid applicant and half by the other owner. However, for Medicaid purposes, the Department of Social Services counts the entire account as belonging to the Medicaid applicant, and the burden (likely through a costly and time consuming Medicaid Fair Hearing) shifts to the applicant to prove otherwise. Therefore, joint ownership does not protect any portion of an account from Medicaid’s rules unless it can be proven that money in the joint account belongs to someone other than the Medicaid applicant.
While there are certainly some circumstances where a joint account may be a valid and effective planning strategy, there are better avenues available that allow a senior the benefit of having someone to help with his or her affairs, but eliminate the issues above.
A simple alternative would be to sign a durable power of attorney and provide your bank with a copy. Your agent under your power of attorney would be able to manage your finances on your behalf, including making withdrawals and writing checks without your permission, but the assets would be owned by you alone. The other advantage in using a power of attorney is that by law, your agent MUST act with the necessary fiduciary diligence to adequately protect your assets. There is no such duty imposed between two joint owners of an account.
Many people also use what is called a Totten Trust to distribute the assets of the account at death. This is a useful tool to avoid costly probate costs and to permit almost immediate access of your account funds to your beneficiaries following your death. Many people simply know a Totten Trust by it’s commonly used moniker ITF, or “in trust for”. By using in trust for (also known as ITF), or pay on death (also known as POD) designations on your accounts, your money will pass directly to the beneficiaries that you have listed after you pass away, but they will have no ownership interest during your lifetime.
It is very important to note though that neither a power of attorney nor an ITF designation will protect your money should you need to apply for NYS Medicaid benefits. In almost all situations, the best way to safeguard your assets is going to be a properly drafted Irrevocable Trust. I have discussed trusts at length in previous blog posts, and I urge to to revisit some of those posts or call my office to discuss trusts in further detail or ti simply keep an eye on this blog and I will go further into detail in the coming weeks.
Should you have any questions about joint accounts or anything else elder law, estate planning or medicaid planning related, please do not hesitate to give my Staten Island office a call or submit a contact request on our contact us page. Lenza Law