Risk. Joint owners of accounts have complete access and the ability to use the funds for their own purposes. Many elder law attorneys have seen children who are caring for their parents take money in payment without first making sure the amount is accepted by all the children. In addition, the funds are available to the creditors of all joint owners and could be considered as belonging to all joint owners should they apply for public benefits or financial aid. Many elder attorneys have seen their clients' accounts embroiled in creditor claims and nasty divorces against their clients' children.
Inequity. If a senior has one or more children on certain accounts, but not all children, at her death some children may end up inheriting more than the others. While the senior may expect that all of the children will share equally, and sometimes they do in such circumstances, but there's no guarantee. People with several children can maintain accounts with each, but they will have to constantly work to make sure the accounts are all at the same level, and there are no guarantees that this constant attention will work, especially if funds need to be drawn down to pay for care.
The Unexpected. A system based on joint accounts can really fail if a child passes away before the parent. Then it may be necessary to seek guardianship to manage the funds or they may ultimately pass to the surviving siblings with nothing or only a small portion going to the deceased child's family. For example, a mother put her house in joint ownership with her son to avoid probate and Medicaid’s estate recovery claim. When the son died unexpectedly, the daughter-in-law was left high and dry despite having devoted the prior six years to caring for her husband's mother.
Disputes. Planning based upon individual accounts really does nothing to inform your family regarding your ultimate wishes. Do you ultimately want to prefer one family member over another? If the effect of planning using individual accounts results in an inequality to family members, was it intended or anticipated? Of course, the resulting ambiguity is the cause of lawsuits, claims, disagreements, and hard feelings.
Fraud. Asset transfers late in life are particularly troubling, if they work to defraud your heirs and/or are not a reflection of your wishes. A plan based upon individual assets and accounts does little to protect your family. On the other hand, a comprehensive plan involving a trust or well-drafted will can better protect your family from late-in-life transfers by informing your family and authorities of your estate planning objectives.
Joint accounts do work well in two situations. First, when a senior has just one child and wants everything to go to him or her, joint accounts can be a simple way to provide for succession and asset management. It has some of the risks described above, but for many clients the risks are outweighed by the convenience of joint accounts.
Second, it can be useful to put one or more children on one's checking account to pay customary bills and to have access to funds in the event of incapacity or death. Since these working accounts usually do not consist of the bulk of a client's estate, the risks listed above are relatively minor.
For the rest of a senior's assets, wills, trusts and durable powers of attorney are much better planning tools. They do not put the senior's assets at risk. They provide that the estate will be distributed as the senior wishes without constantly rejiggering account values or in the event of a child's incapacity or death. And they provide for asset management in the event of the senior's incapacity.
For more information review the previous post regarding direct transfer designations, such as Transfers on Death (TOD) and Payable on Death (POD) designations. Joint ownership, TODs and PODs share many of the same disadvantages.
