The practice of holding joint accounts can have unanticipated negative consequences and it is generally a poor option for estate planning.
When an adult child’s name is added to a parent’s account as a joint owner, the funds are exposed to any creditor claims that may exist against the child. The child also obtains full access to the funds so the funds could be withdrawn from the account and used for unintended purposes. For Medicaid purposes, joint ownership does not provide any protection as the bank account is considered to belong 100% to the Medicaid applicant unless documentation demonstrates that the child contributed to the account.
For estate tax purposes, bank accounts held jointly by a parent and child are considered 100% part of the taxable estate of the first to die, unless documentation can be provided showing that the survivor deposited funds into the account. That means the money could be included in the taxable estate of a child who dies before a parent.
While joint accounts generally pass outside of probate, these accounts frequently cause family disputes. There may be an unequal passing of assets to the child whose name was on the joint account while the other children may argue that the parent wished to treat all the children equally. The child who jointly held the account often argues that the parent intended for her to receive extra consideration because of assistance that child provided.
Other techniques are usually preferable to the use of joint accounts for elder law and estate planning purposes. A properly drafted revocable trust or durable power of attorney can give a child (or any other trusted person) legal authority to pay a parent’s bills while also protecting the parent’s assets from any creditor claims that may exist against the the child. A plan should also be put in place to protect assets from the costs of a long-term care. The seasoned elder law and estate planning attorneys at Kurre Schneps LLP are highly skilled at properly setting up elder law and estate plans.
