4 Reasons to Not Add Joint Account Holders

Banks often suggest that loved ones be added to bank accounts as joint account holders. We usually see this in the form of an adult child being added to his or her elderly parents’ bank account(s).

Adding a non-spouse joint account holder can cause a host of unforeseen problems. The correct course of action, in many instances, may be to give the loved one power of attorney.

Joint Account Holder v. Power of Attorney

A joint account holder has the right to access an account and withdraw or deposit funds without permission from other joint account holder(s). In addition, all joint holders are equally liable for the account, including for insufficient fee charges and other penalties. If one account holder dies, the account will pass to the surviving account holder(s) by operation of law upon the submission of a death certificate to the bank.

A durable power of attorney allows an individual (the “principal”) to appoint a representative to act on his or her behalf for financial purposes, among other things. The representative (also called “agent” or “attorney-in-fact”) can be given access to a bank account to ensure the principal’s bills are paid and funds are deposited. It is not necessary for a principal to make his/her agent a joint account holder. Once the original power of attorney document is presented to the bank by the agent along with valid identification, the bank will have the document reviewed by its legal department and, upon approval, the agent with be able to access the bank account on behalf of the principal.

4 Common Issues That Can Arise When Making a Loved One a Joint Account Holder 

While every family’s situation is different, we have seen some problems arise as a result of naming a loved one as a joint account holder. Here are a few examples:

1. Payable on death accounts, transfer on death accounts and bank accounts held as joint with right of survivorship are considered non-probate assets not controlled by a Will because they passed to the named joint account holder or beneficiary by operation of law. As an example, if one child is added to a parent’s bank account as a joint account holder while his or her siblings are not, that one child will be entitled to all the funds contained in that account at the time of the parent’s death. This may not have been the parent’s intent at the time.
2. Depending on the nature of the relationship between the joint account holders and the value of the account, there may be unforeseen tax consequences to the surviving joint account holder(s) if an account holder passes away.
3. A joint account held between a parent and adult child could potentially cause issues for the parent if (s)he needed to qualify for Medicaid as it relates to gifting/asset transfers. It should be noted that Medicaid has a five-year look back period from when the application is submitted, meaning any gifts made or funds transferred during that time may cause the parent to be denied Medicaid benefits.
4. If a joint account holder has financial issues, the bank account may be subject to claims by creditors, judgments, collections or other collection efforts.

For all these potential problems, we recommend that a power of attorney be executed over adding joint account holders whenever possible. Once the power of attorney is in place, the bank will give the representative the same access to the account they would have as a joint account holder — meaning they can utilize online banking, pay bills, transfer funds, deposit money, etc.

If you have questions about the best options for handling your or a loved one’s finances, please contact us at 856.782.8450 to discuss your situation with an estate planning attorney.