Paul was a saver. Every year, he set aside money for his retirement. He kept the majority of his funds in a simple savings account at the local bank. It was Paul’s wish that his three sons, Ringo, George and John would share the money equally upon his death. But, Paul was concerned that his children would not have access to the funds to pay his bills in the event he became incapacitated. A bank clerk instructed Paul to put one of his sons on his account. That way, the bank clerk explained, his son would have full power to manage the funds. So, Paul listed Ringo as a joint owner on his account since Ringo lived closest and had time to assist Paul if necessary.

A few months later, Paul checked the balance of his account. He saw that all the funds had been seized by a collection company and were now being held by the local court clerk. Paul was confused because he had no outstanding debt. He examined the court docket and realized that a credit card company attached the funds to satisfy a large judgment against Ringo. Paul learned that Ringo ran up his credit cards buying expensive drums and other musical instruments. When Paul called the bank to complain, the bank clerk said there was nothing he could do. Since the funds were held in a joint account with Ringo, they were fair game for Ringo’s creditors.

While joint accounts may seem like an attractive method to allow another to manage funds, there are some serious risks. Once money is deposited into a joint account, it belongs to both account holders equally, regardless of who deposited the money. Either account holder can withdraw, spend, or transfer money in the account without the consent of the other person. That means the creditors of a joint owner can attach all of the funds to satisfy the joint owner’s debts. Likewise, the spouse of a joint owner may claim an interest in the funds.

Perhaps more importantly, a joint account may not be consistent with the account owner’s estate plan. When a joint account holder dies, the money in the account automatically goes to the other account holder without passing through probate. That means upon Paul’s death, Ringo would own the funds in the account. Ringo would have no legal obligation to share the funds with his brothers.

There are several ways Paul could have done things differently. First, he could have designated one of his sons as his agent in a financial power of attorney. That way, his son could manage the account, but his son’s creditors could not reach Paul’s assets. Second, banks often allow account owners to name a power-of-attorney on a specific bank account with the ability to write checks. Third, Paul could have listed his sons as transfer-on-death (T.O.D.) beneficiaries on the account. T.O.D. beneficiaries receive no interest in an account until the death of the account owner. Again, this shields the funds from his son’s creditors during Paul’s lifetime. Fourth, Paul could have established a revocable living trust to hold title to the account. The trust could provide for management of the funds upon Paul’s incapacity and distribution to his sons upon Paul’s death. Further, the trust could be drafted to hold the funds for the benefit of his sons in the event they have creditors waiting to pounce.

It is important that you explore your options with a trusted probate attorney before you use bank accounts as a part of your estate plan. That way, your funds are not at risk and will go to your intended beneficiaries. Laribee & Hertrick, LLP is here to assist you.

Michael Laribee is a partner in the Medina law firm of Laribee Law, LLP. This article is intended to provide general information about the law. It is not intended to give legal advice. Readers are urged to seek advice from an attorney regarding their specific issues and rights.