PUTTING YOURSELF IN HARM’S WAY

“Isn’t it true that you don’t need a power of attorney if you have one of your children’s names on your accounts?” Says the older woman in the back of the room. “A friend of mine told me that she placed her daughter’s name on her accounts and now her daughter can access her money if the daughter needs to get at it.”

As those who read my column on a regular basis know, I present numerous seminars throughout the year on topics of elder law. In the course of presenting these seminars, I’ve heard this woman’s question before, several times. In fact, I could probably write-out the questions that people are going to ask before the seminar begins, and this question would be in the top three questions likely to be asked. (Another common question would relate to the $11,000 annual exclusion from gift tax.)

What these questions tell me is that most people think the same and harbor the same misconceptions about my chosen field of practice. Most people, whether they admit it or not, believe that by adding a child’s name to a brokerage or bank account, they are helping themselves in some manner by allowing the child to access their money.

Among practitioners of elder law, this technique has euphemistic names. Elder law practitioners call it “a poor man’s power of attorney” or “a poor man’s Will.”

That moniker, however, isn’t completely accurate because it’s not only poor people who think this way. In fact, many people in the working and middle classes believe that this technique is a legitimate means of accomplishing disability or estate planning.

While I don’t believe that the term “a poor man’s power of attorney” is completely accurate, I do believe that a famous adage accurately describes a person’s decision to add a child’s name to his account, “fool’s rush in where wise men fear to tread.” Adding a child’s name to your accounts could prove to be a very bad decision.

For example, let’s assume that the woman at the beginning of this column added her daughter’s name to her account – I know she told me that her “friend” had taken this action, and not herself, but law is a lot like psychology in ways, rife with pretend “friends” who do all types of less-than-smart feats. After the daughter’s name is added to the woman’s bank and brokerage accounts, the daughter owns those accounts with the mother.

This means that if the daughter is sued, mom’s money is subject to the daughter’s liability in the law suit. If the daughter files for divorce from her husband, mom’s money could be tied-up in the daughter’s divorce. If the daughter decides to take a vacation with mom’s money, mom would have no one to whom to cry foul because the daughter’s name was on the account as an owner.

By adding the daughter’s name, mom made the daughter a joint owner of the account. Adding someone’s name to an account is not a power of attorney by any stretch of the imagination, even if that’s what you had in mind when you did it. You made the person a joint owner, not an agent under your power of attorney.

Worse yet, if mom requires long-term care at some point in the future, the addition of the daughter’s name to the account did not “shelter” all or even half of the account from having to be used to pay for mom’s care before mom would qualify for Medicaid. The addition of the daughter’s name was not a gift of half the account to the daughter, until the daughter actually removed money from the account, so the addition of the daughter’s name fails to shelter any of the money for purposes of Medicaid.

Finally, when mom dies, the daughter whose name is on the account will own the account, regardless of what mom’s Will provides. If mom’s Will says that her entire estate is divided equally among her four children, the account on which the daughter’s name is on will still pass to the daughter whose name is on the account.

In short, adding a child’s, or a friend’s, name to your accounts is extremely dangerous. This danger can all be avoided by having relatively simple estate planning documents, such as a Will and financial powers of attorney. These documents cost several hundred dollars. The cost of not having these documents or trying to maneuver around these documents could be far, far higher.