Why Put Your Money at Risk?

A question asked by many of my older clients is if the money in the joint account that they set up with their child is available to satisfy a judgment obtained against that child.  In other words, can their child’s creditor remove the money in the account?

While the child’s creditor cannot simply walk into the bank and demand the money in the account, he can try to collect the funds in the account by  commencing a special proceeding against the bank. In that proceeding the creditor can  demand that the bank turn over to him the full amount of the judgment.  If the judgment amount equals or exceeds the balance in the account, the  creditor can demand that the entire account be turned over to him. The reason he can do that is because there is a presumption under the law that each of the people named on a joint account, in this case the parent and the child, owns the entire account.

Fortunately, the presumption  can be rebutted by evidence that the parent contributed some or all of the money in the account. For example, if the parent can provide documentary evidence establishing that her pension or social security checks were deposited into the account, the funds in the account attributable to her social security and pension will not be available to the child’s creditor. The  creditor is only entitled to collect the funds in the account that were contributed to the account by the child.  If it ends up that the funds in the account were all contributed by the parent and that the child’s  name was placed on the account as a convenience only, the bank will not be required to turn over to the creditor any of the funds in the joint account.

The best way to avoid the risk that a child’s creditors may attempt to satisfy a judgment with funds in a joint account is to avoid joint accounts all together. Signing a power of attorney which gives your child authority to  write checks against your account will give you the convenience you want without the risk from creditors.

Linda M. Toga of The Law Offices of Linda M. Toga, P.C. 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.