Is a Joint Bank Account Right for You?

Many people, as they get older, choose to have a joint bank account with a family member, such as a son or daughter.

The idea behind this is to have one less thing to worry about since a joint account is an easy way for someone else to have access to funds for day to day expenses. While this sounds great in principle, there are pitfalls to having a joint bank account:

The account belongs to each person equally
It doesn’t matter whose idea it was to open the account or who puts in more money; it belongs to those listed on the account. That means if one account holder wants to withdraw all the funds, he or she can legally do so without the knowledge or consent of the other person.

A joint account holder is vulnerable to other account holder’s life situation
While you may have good credit and pay your bills regularly, the person you share the account with may not be in good financial standing. If the co-holder of the account falls behind on loans or credit card payments and gets sued, the joint account can be used to pay off the debt. If the co-holder gets divorced, the account is considered an asset that will be divided in a divorce settlement.

A joint account affects Medicaid eligibility
A state looks at an applicant’s assets to see if the person meets eligibility requirements for Medicaid. Even though a joint account may have two names on it, most states assume that the Medicaid applicant owns the entire amount, unless the applicant can prove that he or she didn’t make any contributions. Transferring out of such an account doesn’t assure Medicaid eligibility. In fact, it can be considered an improper transfer of assets and can affect eligibility for a period of time, depending on the amount of money in the account.

Still, there are alternatives to a joint bank account:

  • Set up a durable power of attorney to give access to accounts in certain circumstances, such as a serious illness.
  • For children under the age of 18, set up accounts in trust as a Uniform Transfer to Minors Act (UTMA). In these kinds of accounts, you serve as custodian, but the money is legally the child’s.

Of course, if a joint account is necessary, here are some ways to protect your assets:

  • Keep just enough money in the account to pay for day-to-day items.
  • Set up the account so that two signatures are required for transactions.
  • Use online banking alerts to monitor account activity.

When it comes to bank accounts, things can get tricky. In order to find a solution that works for your particular situation, consult with a senior financial planning attorney or advisor. Newman Elder Law is always here to help.


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