Sometimes an older adult puts their adult child on their bank account. The rationale for this is that the adult child can assist the parent by paying their bills and managing their accounts, including keeping an eye out for fraud. However, co-owning the account comes with its own problems.
Potential Problems
Likelihood of family squabbles: When you put one adult child on your bank account, that means they have access to your money. Let’s say Len is 75 and he has three adult children: Jenny, Barry, and Bob. Len decides he’d like some help managing his finances, so he puts his daughter Jenny on his checking and savings accounts. Those accounts are now both co-owned by Len and Jenny. Bob and Larry might feel that Jenny was chosen because she’s the favorite child, creating a sense of jealousy.
Most banks set up joint account as “joint with rights of survivorship” by default. That means that upon Len’s death, the assets will automatically become Jenny’s. If Barry and Bob realize that they might feel like they are being disinherited.
If your child is sued, has creditors after them, or divorces: What if Jenny causes a car accident and gets sued by the other driver? What if she starts having financial problems and owes money to various creditors? What if she and her husband get a divorce. In all of those circumstances, people can go after the assets in the joint account.
Implications for the estate: Len created a revocable trust that indicates that after he passes away, he wants his assets to be evenly distributed to his three children. However, since Jenny is joint with rights of survivorship on the account, when Len dies the assets in that account will be completely owned by Jenny; not divided among his three children. Then the remainder of his assets in the trust will be distributed evenly among his three children. So, Jenny will end of with a larger inheritance.
Complication for college aid: By putting your adult child on your bank account, it can cause another issue. If Jenny has a daughter applying to college, that child is less likely to get good student aid or scholarships because the bank account increases the amount of Jenny’s assets.
Issue when applying for MassHealth for long-term care: What if Jenny started to use the bank account as her own by putting in money and writing some checks? If Len needs long-term care, he may want to apply for MassHealth (Medicaid in Massachusetts) for long-term care coverage. MassHealth sees funds in their joint bank accounts as belonging to Len (the applicant). So, it looks like Len has more assets than he really does. Jenny would have to prove what funds she contributed to the account so her assets wouldn’t be seen as Len’s assets.
Solution: Power of Attorney
A power of attorney (POA) is a legal document that designates an agent (attorney-in-fact), most often an adult child, to act on another’s behalf in private affairs, business, or legal matters. A durable POA (DPOA) will last even during incapacity. If Jenny becomes Len’s durable power of attorney, she can help him by writing checks and keeping an eye on his finances, but none of the problems above will happen.
Contact Our Elder Law Attorney
As parents age, both parents and adult children often struggle with their changing roles. It’s important for older parents and their adult children to talk about the parents’ wishes and how the children can help them as they are aging. It’s a good idea to plan ahead and not wait for a crisis to happen. We’ll work with you to make sure you have the legal documents in place to ensure that your adult children can step in to help you if the need arises. Contact us today for a free consultation.
