A popular idea among our aging population is to add a co-owner, often an adult child, to an elderly person’s bank account. The intended goal is for the co-owner to manage the elderly person’s finances upon illness or incapacity.
Elderly people also add co-owners to bank accounts to allow quick access to cash for funeral and other expenses upon death. 
 
Elderly people express the belief that the jointly owned bank account will then pass into their estate at death to be divided according to their will. Or elderly people express a belief that the joint owner of the account knows to distribute the funds among heirs upon the elder’s death.
 
Unfortunately, that is not how joint accounts work.
 
A jointly owned bank account permits multiple co-owners to access the account without permission from the other co-owners. As joint owners, co-owners are entitled to any or all the funds in the account even without contributing to the fund balance. Making a person a joint owner of a person’s banking account will certainly assist with the ease and convenience of writing checks, making deposits and accessing cash. 
 
A jointly owned banking arrangement can work well, but consider the following risks:
 

• . While co-owners of a jointly owned bank account want to trust each other, a co-owner can drain the account without permission from the other co-owners.   
• Creditors may come after the bank account for any debt owed by anyone on the account. If a co-owner defaults on a loan that the other co-owner has nothing to do with, the creditor may come after the jointly owned account. There is also potential that in a divorce, a co-owner’s spouse could claim interest in a co-owner’s funds in a joint account.
• Conflict among heirs. Generally, a co-owner of a joint account will legally inherit the money in the account upon the other co-owner’s death. Just because a parent expresses a desire for the co-owner to divide the account with other upon the parent’s death does not mean the co-owner is required to do so. The account co-owner is not legally obligated to share the funds with siblings or other beneficiaries of the estate. 
• Bypass estate planning documents. Money in a jointly owned account will pass outside of a will.  This aspect cannot be changed by using a will because a joint title holder will almost always trump a will.

 
Access to a parent’s bank account can easily be accomplished without these risks by executing a durable power of attorney or creating a trust. In a durable power of attorney, a trustworthy person is named the “attorney-in-fact.”
 
When it comes to financial transactions, an attorney-in-fact is free to spend money with two very important restrictions:

• The funds must be used only for the benefit of the principle
• Upon the principle’s death, the money is part of the principle’s estate to be distributed according to the owner’s will or trust; it doesn’t go to the person named as attorney-in-fact.

 
With this document, a person will have complete and full access to bank accounts or other financial matters, but not ownership. 
 
A trust will resolve the same goals. A parent may remain a trustee of a trust until incapacity or death at which time another person takes over as trustee. This allows for a seamless transition whereby the successor trustee has the ability to handle a parent’s financial needs and manage any assets within the trust. If the parent recovers from incapacity, the parent will again become the trustee over the trust. If not, the successor trustee takes over after death.

Andrew Olsen is an attorney in the CSH Law Elder Law Practice Group in Wilmington, NC, where he practices in the areas of elder law, estate planning probate, guardianship, alternative dispute resolution, estate and trust litigation, special needs planning and veteran’s benefits. To contact Olsen, call (910) 777-5733 or email him at [email protected].