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For many seniors living alone or who have lost their spouse or life partner, adding an adult child as a signer to your bank account seems like a good idea.  You might be worried that if you become sick or unable to manage your own affairs that your bills will go unpaid and the thought of having your child take over your banking may be reassuring.  In some situations, you might be looking to have an adult child help to monitor your accounts to make sure there’s no unauthorized withdrawals or fraud and to keep tabs on bank charges.  For some families it might work out, but for many others, adding someone like a child as an owner of your account may be risky.

When you put your adult child on your account, they become a co-owner of the account.  They can write checks off that account, make deposits and withdrawals without any restrictions or even having to consult you.

Downside to Joint Account Ownership

The downside to adding someone to your accounts can be huge.  On a joint account, whether it’s a bank or investment account, the person you add has the same rights and ownership of the account as you do.  The legal consequences of this joint ownership can be devastating to the senior.  This includes:

  • Your joint account holder can write checks or make withdrawals, without limitation.
  • Your joint account holder will inherit the account upon your death which may be different than what you intend in your Last Will and Testament.  Any account that you hold jointly passes outside of probate and the proceeds go directly to the other joint account holder.  That means your other children could be disinherited from this account.
  • Creditors of either owner can use the account to satisfy debts. If your child has money problems, the account can be drained or taken by a creditor for unpaid debts.
  • Your ex-son or daughter-in-law may get the account assets.  If your child is involved in a divorce, a bank account may be listed as a marital asset for splitting.
  • Adding a joint owner to your account is fairly easy; removing them could be a nightmare.  If your child is added to your account and you later decide to want them removed, you have to get them to agree and sign to remove them as a joint account holder.
  • A joint bank account could prevent you from obtaining Medicaid or MassHealth benefits as the money in the account is factored into eligibility.  There are also problems for an adult child in applying for financial aid for their college bound child.  The bank account asset will be attributed to your child and could be used against him or her for financial aid.

A Better and Safer Option

A better and safer option is to add your child as the Power of Attorney (POA) to handle your financial affairs.  With a power of attorney, you remain the owner of the account while the adult child acts as the agent to make financial decisions on your behalf.  There are two different types of POAs.

  • Immediate POA becomes effective the moment you sign the document and allows full access to your account, to write checks, withdraw funds or to even close your account. This allows the same authority as a joint holder without causing the account to pass outside your Last Will and Testament.  Additionally, the account will not be considered part of the POA’s asset holdings or be reachable by their creditors.
  • Springing POA only becomes into effective should you become incapacitated or incompetent. If that medical event occurs that prevents you from managing your own finances, the person (or adult child) you name will step into your shoes to pay your bills, monitor your accounts and manage your finances.  When your health is regained, management of your accounts reverts back to you.

Planning Ahead is Always the Best Plan

As you age, it’s often hard for both you and your adult child to adjust to your changing roles.  To ensure your wishes are followed, it’s important to have a conversation with your children as to how you want things handled in the event a crisis occurs. (For help on starting the conversation, download our e-book here.)  With advancing age, you have many options in account ownership and in managing your financial affairs during a crisis.  It’s important to understand these risks and consulting with an experience elder law attorney experienced in these matters.  Don’t wait until it is too late.

As a leader in guiding seniors as they plan their future, Generations Law Group, with offices in Acton and Sudbury, Massachusetts, assists families in planning so they can achieve their most important life goals.

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