At first glance, it may appear that opening a joint account with an elderly loved one is a great way to avoid probate or help that loved one manage his or her affairs. While joint accounts may be useful in certain circumstances, these accounts can cause major problems if they are mismanaged.When money is deposited in a joint account, it belongs to both account holders equally. It does not matter which person deposited the money. Account holders do not have to obtain the consent of the other account holder before withdrawing, depositing, spending, or transferring money in the joint account. Therefore, it is extremely important that you have complete trust in the person with whom you wish to share a joint account. This person will have unbarred access to the funds in the account and may do with it as they wish, without your consent or even awareness. Senior citizens are often taken advantage of by loved ones, friends, or caregivers when they open joint accounts. They often do not realize that the joint account holder could potentially take all the money in the joint account without even notifying them. This is a prevalent form of elder abuse.
Posted on January 9, 2017
Another major problem with joint accounts is that both account holders are vulnerable to the other account holder’s creditors. For example, if you add your mother to your bank account and she falls behind on her car payments due to illness, the credit company can use the money in the joint account to recoup her car payments. Additionally, if one of the joint account holders gets a divorce, the money held in the joint account could be considered a marital asset and could be subject to property division in the divorce.
Joint accounts can also affect Medicaid eligibility for the account holders. If an account holder applies for long-term care coverage under Medicaid, the government looks at the applicant’s assets to determine eligibility. The funds held in the joint account will likely be viewed as the applicant’s assets. The government tends to view the funds held in joint accounts as if they are solely the assets of the applicant. This also applies when an account holder is entering a nursing home. The funds in the joint account could disqualify an applicant from Medicaid because it appears that the applicant has too many assets, even if the applicant contributed little to nothing to the joint account.
Medicaid can also be negatively affected if one of the account holders transfers money out of the joint account. Because Medicaid views the joint account as the property of the Medicaid participant, any transfer out of the account, even if done by the other account holder, can be viewed as an improper transfer of assets. An improper transfer of assets will likely disqualify the Medicaid participant for a period of time. The reasoning behind this is that Medicaid does not want applicants or participants transferring their assets to a family member or friend in order to financially qualify for Medicaid. Even if the other account holder transfers funds from the joint account, it can be seen as an improper transfer for Medicaid purposes. This can also occur if the Medicaid participant is removed from the joint account. Disqualification from Medicaid could have a devastating impact on your loved one’s medical and long-term care.
One positive aspect of a joint account is that it can help avoid probate. When one of the joint account holders dies, the remaining account holder becomes the sole owner of the joint account. However, avoiding probate can be achieved through other legal means that do not leave your elderly loved one in danger of elder abuse or losing Medicaid eligibility.
A power of attorney is one way to allow your family members to manage your financial or medical affairs, either immediately or upon your incapacitation. A power of attorney is a legal document that appoints a person or persons to make medical or financial decisions on your behalf. If you are merely seeking to transfer assets upon your death while avoiding probate, a trust may be the best option. It allows you to provide for division of your assets upon your death, without giving those beneficiaries rights or access to those assets before you die.
One simple way to avoid probate for funds held in a bank account is to make the account a payable-on-death account (POD). Basically, you tell your bank the person or persons who will inherit the money in that account upon your death. It is a very simple means of avoiding probate. With a POD, the beneficiary does not have any rights or access to the funds in the account while you are alive. Those rights only trigger upon your death. Therefore, it is not considered your beneficiary’s assets until you die.