Many elderly people add a child’s name to their bank accounts. The reason most elderly people do this is to permit the child to access the account in order to pay their bills. For instance, if the elder is sick and in the hospital, he believes that having his son named on his bank account will permit the son to pay his bills until he’s well enough to resume doing it for himself.
Few people, however, consider all the negative aspects to having someone else named on their accounts. If you put another person’s name on your bank account, then that person is an owner of the account.
While you might trust your child, the fact of the matter, as a joint account holder, the child is free to use your money anyway he wants to use your money. There are no restrictions on his use of your money.
If your child is involved in an automobile accident and is sued, his creditors can come after your money to satisfy any judgment they might be obtain against your child. If your son has credit card debts, his creditors can sue him and possibly come after your money to satisfy his debts.
If your son gets divorced, his soon-to-be-ex-spouse might claim that the money in the joint account is his money and, therefore, her money to an extent.
Obviously, the worst thing that can happen to any of us is death, and death often brings about the worst results with joint accounts. For instance, assume that Mary has joint accounts with her brother. She put her brother’s name on her accounts because she wanted her brother to be able to pay her bills in the event she was no longer capable of paying her bills herself, for instance, if she were sick.
Mary has two stepchildren and a child of her own. In her Will, she leaves a quarter of her estate to her two stepchildren, a quarter of her estate to her child, and a quarter of her estate to her brother. Mary dies. The majority of her estate is held in the joint accounts on which her brother is named as a joint account holder.
The banking law governing joint accounts states that money in a joint account passes to the joint account holder unless the beneficiaries of Mary’s estate can prove by clear and convincing evidence that Mary placed the name of the joint account holder on the account purely as a matter of convenience. Stated otherwise, the beneficiaries would have to present very strong evidence that Mary only added her brother to the accounts in order to pay her bills. Absent a very high level of proof, the money in the accounts will pass to the brother, irrespective of the terms of Mary’s Will.
Furthermore, even if the brother wants to share the money in the accounts with the other beneficiaries or even if the beneficiaries could prove that Mary only added her brother’s name to the accounts as a matter of convenience (to permit him to pay her bills), the New Jersey Division of Taxation will subject the entire amount in the accounts to the New Jersey Inheritance Tax as if the accounts pass to the brother.
An inheritance passing to a brother is subject to New Jersey inheritance tax. An inheritance passing to stepchildren and a child is not subject to the inheritance tax. But because of the joint nature of the accounts and because of the banking law that says the entire account passes to the brother, the tax division will tax the entire account as passing to the brother.
So, what is the simple solution to the problems inherit in putting some else’s name on your accounts as a joint owner? Have a power of attorney. A power of attorney document is a document that allows someone else to access your accounts for your benefit without that person being an owner of the account. None of the aforementioned problems exist when you use a power of attorney.