Is a Joint Account Safe?

The Facts: I recently went to the bank where I had a checking account with a balance that reflected over 50% of my estate. The account was in my name only. I am not well and am living with my son. I have two other children who, according to my Will, are to share equally in my estate after my death. My son drove me to the bank and was sitting next to me when I discussed my account with the bank officer. Because of my poor health, the officer told me that I should change my account to a joint account with my son so that he can pay my bills if I become unable to do so. The officer added that there was no reason not to have my son’s name on the account since, “You trust him, don’t you?”

Although I felt very uncomfortable with what the bank officer proposed, I changed my account to a joint account to avoid hurting my son’s feelings. My son is now a joint owner of the account, both our names are on the checks and we are both able to write checks against the account.

The Questions: If I wanted my son to pay my bills, were there other options available to me? Now that the account is established, will all of my children share equally in my estate upon my death?

The Answer: Yes, there were other options available and no, your son will receive the bulk of your estate. Although steps can be taken to insure that your estate is divided equally between your children, the most important lesson here is that you should not accept legal advice from people who are not attorneys. Generally, bankers know about banking, not about the complexities of estate planning. If you had consulted me before changing your account, I would have recommended that you give your son the authority to pay your bills by signing a power of attorney. A properly prepared and executed power of attorney granting your son authority to handle banking transactions on your behalf would allow your son to pay your bills using the checks from your original individual account. There is absolutely no reason your son has to be an owner of and signatory on your account in order for him to pay your bills. The bank officer not only misled you, but he put your money at risk. By putting your son’s name on your account, the funds in the account are now available to your son’s creditors. Although you may have the utmost trust in your son, you do not want his creditors to be able to use your money to satisfy your son’s debts. Those creditors would not be able to access the funds in your account if you had simply granted your son authority under a power of attorney.

As for the distribution of your estate, by following the advice of the bank officer, you have effectively changed your estate plan. Instead of each of your children receiving 1/3 of your estate upon your passing, your son will now receive the entire balance in the account at the time of your death, plus 1/3 of any other assets you own. The money in the account will not pass through your estate but will pass directly to your son. Your other children will inherit much less than they would have inherited if you had not changed the account. For example, if the account holds $300,000 and you have $300,000 in other assets, upon your death your son’s share of your estate will be worth $400,000 while the shares going to your other children will only be worth $100,000 each.

To avoid this unintended result I suggest that you change your Will to reflect the fact that the balance in the account should be taken into consideration when calculating how much of the rest of your estate will pass to your son. Another option is to have your son sign an agreement with your other children in which he acknowledges that his name was placed on the account for convenience purposes and agrees to distribute 1/3 of the account to each of your other children upon your death. While neither option will protect the money in the account from your son’s creditors, both will insure that your original estate plan is honored.

This article first appeared in the January 21, 2010 issue of The Beacon Record Newspapers.

Linda M. Toga of The Law Offices of Linda M. Toga, PC is an East Setauket, New York attorney with a general law practice focusing on estate planning, real estate, marital planning, small business services and litigation.