Joint Ownership of Bank Accounts
Senior Citizens often add another person's name (a child or other relative) to a bank account, so that if the Senior Citizen becomes disabled or is hospitalized, the other person can write checks to pay the Senior's bills. Another reason may be to avoid probate. But when another's name is added (so that person becomes a joint owner of the account), that person has the legal right to spend the entire account without regard to the wishes of the Senior Citizen who deposited the money.
Most of us trust that our child would never take money from our account to use for his or her benefit. But it may happen beyond the child's control. For example, if your child were involved in a car accident and could not pay the bills, the hospital could take the money from your bank account, because the child is a joint owner. You might be able to get your money back because it came from Social Security, for example, and therefore should not have been taken. But you would still be involved in a lawsuit and your funds might be frozen for a period of days or weeks. ("Joint tenancy" or joint ownership of your home has this same disadvantage --your home could be taken for an involuntary sale to pay debts owed by one of the other owners. There are other drawbacks: for example, joint ownership of your home, once established, is not easily changed; if you decide to sell, all the other owners must agree.)
There are safer ways to avoid the need to probate bank accounts and pay bills during a period of disability.
To provide that your bank account will go to the persons you choose without probate, you can make the account Payable on Death (POD): you name a beneficiary (or beneficiaries) who will get your money, automatically, upon your death, without making the person an owner while you are alive.
To provide that a person can write checks on your account if you become disabled, you can prepare and sign a Power of Attorney. You, the person granting the power, are called the principal. The person to whom you give the power is called your attorney in fact or your agent. A Power of Attorney can give as much or as little power as you choose: a limited power might allow your agent "to sell my car and deposit the sale proceeds to my bank account" or "to write checks on my bank account to pay my utility bills;" a "full" power would allow your agent to transact all your financial affairs for you.
A Power of Attorney can become effective when it is signed or at some future date or event, such as "only in the event of my disability." If you want to name someone to take care of your financial affairs in the event you become disabled, the Power of Attorney must state that it "will become (or will continue to be) effective" even if you become disabled. This is called a "Durable Power of Attorney."
A Power of Attorney can be revoked at any time as long as the principal remains mentally competent to do so.
Because putting someone’s name on your account carries with it certain risks that a power of attorney doesn’t, and because probate can be avoided by safer means, we recommend against joint ownership of bank accounts in favor of these other methods.
