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The Dangerous Rocks under the Waters of Joint Bank Accounts

I’ve seen it time and time again. A client comes in who has added a son, or a daughter, or a grandchild, or a niece or nephew, or someone else to the client’s bank account… or that is the client’s plan. It seems like a good idea. It gives another person access to the bank account for the payment of bills and other obligations. If anything happens to the account holder, the other person added to the account can take over the payment of bills and obligations, so they don’t go into default.

It’s so simple to do. It’s easy. It’s practical… but it’s so dangerous. It’s a siren’s song.

Low level bank employees won’t question you, as long as you seem to be of right mind and there is no evidence of undue influence from the other person. After all, it’s your bank account. You can do what you want with your own bank account. It’s also incredibly common, but it’s not very wise.

Years ago, legislation existed allowing the option of adding a person to a bank account “for convenience only”. This was an easy, practical way of giving someone access to an account to pay your bills and manage the account if the account holder became disabled. You could add another name to the account “for convenience only”, meaning that the other person wasn’t considered an owner of the account.

That legislation lapsed, though, and it was not reinstated. The option of adding a person to your account “for convenience only” is no longer available. The only way to add another person to your account now is to make him or her a joint owner of the account. That may be acceptable for married couples, but it’s not generally a good idea outside of the context of marriage.

Think about the rocks hidden under the waters of joint bank account ownership. What are the implications of joint bank account ownership?

Under the law, a joint owner is an owner of the account. That means a joint owner has complete access to the account. That means a joint owner could drain the bank account, and no one at the bank would ever question it.

In fact, adding another person to your bank account has the exact same effect as making a gift to that other person. In effect, you are gifting your bank account to that person. You are giving that person ownership of the account, including the ability to use the funds in that account for his or her own purpose.

Of course, many people implicitly trust the people they add to their bank accounts. Even if the other person is trustworthy, and he or she wouldn’t use the account for his or her own purposes, most estate planning attorneys advise against adding someone else to your bank account. Even if you intend to make a gift to the other person, you should think twice about adding them to your bank account.

By adding another person’s name to your account and making him/her a joint owner, you have subjected your account to the creditors of that other person. If that other person gets behind on credit card payments, ends up with a judgement as a result of an unpaid debt, a traffic accident, or other personal liability, your account is now available to the joint owner’s creditors.

If a creditor gets a judgment against the joint owner of the bank account, that creditor can file a citation proceeding or non-wage garnishment action and freeze the account. You won’t even be able to touch it. Then they can wipe out the account to satisfy the joint owner’s debt, and there is nothing you can do about it. You made him or her a joint owner.

But there are more rocks under those joint account waters to be concerned about. Joint accounts can affect Medicaid eligibility. Medicaid eligibility depends upon the assets of the applicant. Medicaid will consider any bank account owned by the applicant to be the applicant’s assets. Adding someone’s name to your bank account could make that person ineligible for Medicaid.

Further, Medicaid has a five-year look back rule. If assets in your account were removed by the joint account owner (the person you added to the account), even if you didn’t remove those assets yourself and didn’t even authorize them to be taken out, it may be considered a gift from you that would make you ineligible for Medicaid for up to five years.

I council my clients never to add another person to bank account without very careful consideration of what you are doing, understanding the consequences (the rocks under the water). There usually is a better way of giving access to your account so that they can manage it and pay your bills and obligations if you become unable to pay them for yourself.

The best way to give another person access to your account for your benefit to help you pay your bills is to use a Power of Attorney. A Property Power of Attorney allows you to name another person as your agent (not as an owner of your account) with authority to manage your account and pay bills if you become unable to pay them for yourself.

A much more comprehensive way of providing access to an account is by creating a Living Trust. A Living Trust gives you maximum control. It allows you to designate successor trustees with the authority to manage your assets and your estate if you become unable to manage your assets and estate for yourself. It allows you to tailor your instructions and retain control, even if you lose the ability to make decisions in the future.

Before launching your boat into the swirling, rocky waters of joint bank accounts, think about the effects of what you are doing. Better yet, talk to an attorney who can help you steer clear of the rocks under the water.

Kevin G. Drendel
Drendel & Jansons Law Group
111 Flinn Street
Batavia, IL 60510
(630) 406-5440
(630) 406-6179 fax
[email protected]
foxvalleyestateplanning.com

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