{Read in 4 minutes} Often one may ask a loved one to assist them in managing their finances. Perhaps this is related to a person recognizing an oncoming inability to manage their own money, unfamiliarity with the process, or just an unwillingness to do it. While generally, people deal with medical decisions by way of a Health Care Proxy or a Living Will, a person in this scenario would have to choose between signing a Power of Attorney or adding someone to their bank account(s) as a joint account holder.
Power of Attorney
Both of these approaches have advantages and disadvantages. The advantage of the Power of Attorney approach is that the money in the account is very clearly the property of the Principal. When the Principal dies, this account will be an asset of the Principal’s Estate and will be distributed under the terms of their Will to the creditors or the beneficiaries, as appropriate.
During the lifetime of the Principal, either the Principal or the Agent under the Power of Attorney may make gifts of the Principal’s assets from the account(s) in question. But the Agent will not be able to do so unless the Principal has signed a Statutory Gift Rider authorizing them to do so.
Upon the death of the Principal, the Agent’s authority ceases and the Agent may make no more transactions, which means that the Agent will not be able to pay ongoing bills from the accounts, including the cost of the Principal’s funeral expenses.
Joint Account Holder
The other option that some people pursue is to add a joint owner to the account. Under this scenario, the person who is looking for assistance may name someone (an adult child, a friend, etc.) as a joint account holder. During the life of the Principal, either the Principal or the joint account holder may transact on the accounts, including making withdrawals or deposits. There is no need for the bank to review a Power of Attorney form and send it to the legal department for approval. All that the bank will require is that the Principal and Agent show up together, with identification, and sign signature cards on the account.
There is significantly less oversight governing joint bank accounts, which could prove to be a blessing or a curse. Unlike the Power of Attorney, which requires the Agent to act in the best interest of the Principal, the caretaker/helper on a joint account has a legal right to withdraw all of the funds from the account if they choose. Upon the death of the Principal, the joint account holder usually inherits all of the funds left in the account — even if this is contradictory to the terms of the account holder’s Will. Therefore, when setting up this sort of arrangement, it is essential that the account owner and the agents have a conversation about what will happen to the funds in the account after the death of the Principal. And if there are other interested parties involved (such as other adult children), a family discussion may be even more appropriate.
Communication is Key
As with anything else, communication is key, especially if one wants to avoid a Will Contest, which frequently goes on and on — at great expense both in dollars and aggravation. Often, absent communication, the dispute over whether or not the account holder intended for the joint account funds to go to the joint account holder, or to the other beneficiaries of the Estate, may culminate in further litigation, such as a discovery and turnover proceeding.
For more information on this topic, please contact me.
