Although joint accounts are often used so that there is always one owner who can handle the assets in the account in the event of the death or disability of the other owner, there are many problems that one should consider before opening a joint account as described below:

1.  Assets are subject to other owners’ creditors.

It is not unusual that a parent names a child as a joint account owner for the reasons mentioned in the introductory paragraph. However, if the child has creditor issues (either now or in the future), then all of the parent’s assets in the account are subject to the child’s creditors. So, for example, if the child gets in a car accident and is inadequately insured or if the child does not pay on a loan, lease, etc., the parent’s assets in the account are exposed to the child’s creditors.

2.  Marital Problems of Joint Owner.

If the parent names child as a joint account owner and the child is getting divorced, the child’s spouse may attempt to make some claim on the account (i.e., perhaps a duty to support). Furthermore, if the child has given a power of attorney naming his or her spouse as an agent, it is possible the spouse may take funds in the account prior to filing for divorce. The authority of an agent under a power of attorney who is a spouse doesn’t terminate until divorce (and then it terminates as a matter of law).

3.  Transfer of Asset Inconsistent with Will or Trust.

Many are unaware that the signature card on how the account is established supersedes a Will or Trust. As a result, unintended results could occur. For example, the parent establishes a joint account with the “in town” child. After the death of the parent, the “in town” child has no legal obligation to share the proceeds of the account with his or her siblings.

4.  Tax Issues.

Capital gains taxes (appreciated assets in particular), estate and gift tax issues should be considered before the account is established as the “joint” account could result in adverse tax consequences. For example, if a married couple has a taxable estate and the Will or Trust of the couple has estate tax planning to reduce or eliminate any estate tax, the planning may be superseded by joint account ownership.

5.  Delay (not avoidance) of Probate.

Although probate may be avoided on the death of the first joint owner to die, probate may be needed when the surviving owner dies.

6.  Medicaid.

Medicaid benefits (i.e., where the government helps pay for nursing home care costs which are only one of 109 Medicaid programs in Texas) are means-tested and the government presumes that if the applicant’s name is on the account that it is all the applicant’s money. So, if the child’s money is used to fund the joint account, the child must rebut the presumption by showing proof that it is the child’s funds. Otherwise, it could result in Medicaid ineligibility.

All options (wills, trusts, beneficiary designations, account ownership, etc.) should be considered in making sure your plan fits your goals – and everyone is different.

If interested in learning more about this article or other estate planning, Medicaid and public benefits planning, probate, etc., attend one of our free upcoming virtual Estate Planning Essentials workshops by clicking here or calling 214-720-0102. We make it simple to attend and it is without obligation.