Co-ownership of accounts with adult children is a common occurrence among the aging population that may result in unintended consequences. Many older individuals prefer the security of knowing that their loved ones have access to their finances to help them pay their bills in the event they become ill or otherwise incapacitated. The solution for some is to add their adult children as co-owners of their accounts, often at the recommendation of a banker. Keep in mind, however, bankers are not lawyers and may not be aware of potential legal consequences of that decision. Here are just a few:
1. Loss of the funds.
Stealing: “How could that happen? My son would never steal from me—I trust him.” This is the usual response when I express concern about significant co-ownership situations. Unfortunately, it happens more often than you may expect, especially when you may be at a more vulnerable point in your life. Most of the time, children are not out to rob their parents. However, due to the ease of access, you may facilitate your children’s use of your money for what they feel are legitimate reasons. For instance, children may “borrow” money, perhaps without your permission. They may rationalize, “I am going to inherit this money anyway—I may as well take some of it now when I need it.” Or, it may become easy to blend their own personal expenses with yours, sometimes just out of carelessness. While it may seem harmless, it may add up over time and deprive you of options as you age—in case you were not aware, aging can be expensive! Unfortunately, there is not much you can do about this—technically, it is not stealing if you made them an owner.
Creditor Exposure: Sometimes the loss of funds can be unintentionally caused by your children. While your children may be responsible individuals, life happens. Your child may be faced with unexpected situations, such as a lawsuit, costly catastrophic illness, divorce, loss of employment, etc. Your accounts may be exposed to their creditors or former spouses.
2. Estate Planning Objectives Frustrated.
Upon your death, the surviving co-owner becomes the sole owner of the account you added them to, despite what your estate planning documents state. This may not have been the result you intended. Your intended beneficiaries may not be happy about the result either.
3. Long Term Care Expenses?
If you are faced with the high expense of assisted living, adding a co-owner does not reduce the amount of assets counted towards your eligibility for public assistance programs, such as Medicaid long term care benefits.
4. Not Easy to Undo
Once you add a co-owner to an account or asset, you usually need their cooperation to remove them as co-owner, even if it was originally your account and your money.
There are safer ways of providing your children access to your accounts to help you manage your finances, without making them a co-owners and exposing your hard-earned savings to risks. To name a few examples, in order of increasing effectiveness:
– Signing Authority: Your children may be signors on your bank accounts without being owners. This allows them to sign checks on the account for your bills and other needs. (Some bankers may prefer adding an owner rather than adding a signor because it is easier to verify.)
– Payable-On-Death Beneficiary: If you are concerned about them avoiding probate, you may designate your children as beneficiaries to your assets upon your death. They just need a death certificate to access the funds. However, this option comes with many potential drawbacks. Without a formally appointed person in charge of handling your affairs after your death (a “quarterback” for your estate, such as a Personal Representative or Trustee), it is difficult to ensure that your affairs are handled appropriately. And, this of course offers no benefit in the event of your incapacity.
– Power of Attorney: With this document, you may authorize your children to act as your agent as needed to assist you with your financial affairs, including access your bank accounts. Again, they are not owners of your accounts, just your helpers. This should not frustrate your estate planning or expose your assets to their creditors, either. There are serious legal repercussions if your agents use your assets for their own benefit. One downside is that Powers of Attorney are effective only during your lifetime.
– Living Trust: A living trust may be one of the most effective options for seamless, ongoing management of your assets on your behalf, in the event of your death or incapacity. It combines the benefits of all of the other alternatives named above (signor authority, death beneficiary designations, and Power of Attorney), during your life or death, in one document.
A little estate planning, such as a living trust, can provide you and your children peace of mind and make all of your lives easier. On the other hand, adding co-owners to your assets, while it may seem simple, can lead to unintended and costly consequences. Our experienced attorneys are ready to assist you—call today to get started.