Long Term Care Planning: Joint Bank Accounts
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When you or your parent is no longer able to follow a budget or keep track of money coming in and out, it may be in everyone's best interest to have a shared bank account with a trusted family member responsible for managing it.
Opening a new joint back account
But many older people have had their own bank account(s) for decades, possibly a joint account shared with a spouse, and giving up some or all control to a child or other relative can be hard. If you are thinking of opening a new joint bank account, with a parent as co-owner, here are some points to consider:
In most joint bank accounts, with a right of survivorship, there is no mine and yours. Two people have access to the account in its entirety, no matter which person earned or deposited the money. One person can withdraw the entire amount for any purpose without notifying the other owner.
Most joint accounts are set up so that the entire account passes to the second person if one person on the joint account dies. But in certain states this presumption can be challenged. The joint amount of money in the account is not included in the person's estate to be divided among the heirs.
If the amount in the account is substantial, other family members may object. Even if the amount is small, other heirs may see this uneven distribution of assets as unfair. There may be income and inheritance tax implications as well.
An alternative but little-used option for a bank account is a multiparty account without a right of survivorship, sometimes called a convenience account. In this type of account the cosigner has the authority to make deposits and withdrawals, but in the event that the primary person dies, the remainder of the account goes into the estate and does not pass to the co-signator.
Although banking laws permit these accounts, many banks do not encourage their use, possibly because they require extra training of staff and monitoring. Still, if this seems a good option, talk to a banker about it.
Adding another person to a bank account could have implications for future Medicaid eligibility. The account could be considered a transfer of assets at less than fair market value. If this transfer happens within five years of an application to Medicaid, the person is penalized according to Medicaid look-back rules.
Obviously, setting up a joint bank account should be done only with someone you trust completely. Even so, it may be prudent to keep only the minimum amount necessary to pay bills in the account and avoid bank fees that might apply to a minimum balance.
A large amount of cash sitting in a bank account can turn out to be an attractive nuisance, applying to this situation a term describing something on a property that a child may find both dangerous and appealing. If the joint owner of the account takes out money for personal use, even with all the best intentions of repaying the money, there's always the possibility that he or she won't be able to fulfill that promise.
The annals of elder abuse are filled with stories of relatives, household help, and new friends who have taken advantage of a trusting older adult to enrich themselves or to pay themselves for taking care of an older person when that was never part of the agreement. Best not to put temptation into the picture.
A key concept in all these situations when someone has access to another's money is fiduciary duty, which occurs when one person depends on another to act in his or her best interest. The responsible person has a duty of loyalty to act only for the elderly person's benefit and to act with good faith in furthering his or her interests.
Furthermore, he or she has a duty to disclose all relevant information. Anyone taking on the responsibility of a joint bank account should be reminded about these ethical and legal requirements.
Is cash sitting in an old bank account?
Some people open a variety of bank accounts and then forget about them. In an earlier era, banks offered toasters and other items to entice new customers, and thrifty people took advantage of the offers. Sometimes a spouse opened an account to keep some money hidden. Make sure you ask your parent or other relative about any bank accounts that may fit this profile.
Check drawers and folders for evidence of these accounts. If the accounts are unused for a period of time, usually three to five years, the bank or financial institution is required to send a letter to the account holder (which probably goes into the pile of junk mail) before the money is turned over to the state.
Newspapers periodically publish lists of unclaimed bank accounts. One estimate is that more than $33 billion in unclaimed funds are in the U.S. For a map of state offices handling unclaimed funds, visit National Association of Unclaimed Property Administrators.
Consider drawing up an agreement that states the sources of money to be deposited such as (Social Security, pension, family contributions), how it will be spent (such as rent or mortgage, household expenses, doctor bills, household help), and what should happen to the balance if the co-signator dies.
This document would not be legally binding but would make clear to both parties (and to the rest of the family) how the joint account will be used. The agreement may need to be changed if circumstances change.