Jennifer R. Luitjens, Esq., CELA*
To join or not to join, that is the question. Joining what, you ask? Oprah’s Book Club, Ringling Brothers’ Circus, or the Jonas Brothers Fan Club? No, nothing that exciting, but a question that deserves as much, and arguably more, consideration prior to a decision: whether to join names on accounts.
Jointly-held accounts can be an efficient ownership option for many individuals. Spouses and other couples often have joint bank accounts and investment accounts for ease of access as well as for survivorship rights. They usually require only one signature for withdrawals and other account decisions, and the surviving owner will inherit the entire account at the death of the other owner. However, there are many circumstances when it may not be appropriate for members of a couple or any other groups of individuals to hold title jointly.
One reason involves creditor concerns, as access to an account also means access for that individual’s creditors. For example, a mother may add her daughter, Paris, to her bank account. Even if Paris has the best of intentions regarding these funds, she cannot protect this account from her creditors. What if the daughter has a wild evening and gets into an auto accident, resulting in a lawsuit? The joint account with her mother is at risk. Perhaps Paris is a bit more responsible, but nevertheless gets divorced or files for bankruptcy? Her mother’s funds are still at risk. It may not matter to the opposing party that Paris was only on the account for convenience.
Another potential risk with joint accounts lies with the survivorship aspect. Does the account owner really intend for the surviving joint owner to inherit the asset? What if Dad adds his daughter, Venus, to his account because she lives nearby, but he wants to leave his assets equally to both daughters? As a joint surviving owner, Venus would inherit these funds, with no legal obligation to share with Serena. Even if Venus feels a sense of moral obligation, she may incur a gift tax liability if she makes later transfers to Serena in excess of the annual exclusion.
Joint assets certainly have a place in many plans, but there are alternatives. If lifetime access to an account is really the only intention, then the account-holder could create a Power of Attorney or some other type of fiduciary account. If post-death access is desired, then other traditional estate planning documents, such as a will or trust, can accomplish this directive. Other options would include specific account designations offered by the financial institution, a Totten trust account or payable-on-death/ transfer-on-death account. To join or not to join? It’s worth some consideration (and then you could still join the circus).
Jennifer R. Luitjens is Certified as an Elder Law Attorney (CELA) by the National Elder Law Foundation, a non-profit organization accredited by the ABA. She lives in Jericho and practices in South Burlington with the Jarrett Law Office. This article is for informational purposes only and is not intended to constitute comprehensive or specific legal advice. The author stresses the need to engage appropriate legal and financial professionals when devising your individual estate plan.