Coastal Senior is a monthly periodical covering the South Carolina and Georgia low country. Bob Mason is its legal columnist.
Many people make big mistakes titling bank and investment accounts. Often advisors and bankers are the source of the advice to “put your child’s name on the account”. However, the results of jointly holding an account with another can be surprising and unpleasant.
The advice has likely been given with the best of intentions – which does not make it correct. The reason is usually convenience. An older person may feel better knowing that a trusted son or daughter has immediate access to an account “in case something happens”.
A better way to provide emergency access to financial holdings for a trusted person exists. Read on. First, here is why a “joint account” may not be the proper approach:
- Mom has likely made daughter a co-owner of the account. Daughter now owns the account as much as Mom. Could be bad. What if daughter is sued? What if daughter gets into a messy divorce? Or the IRS takes a keen interest in her affairs?
- If Mom dies Sis’s two brothers may be out of luck. Happens all the time. Mom wanted the kids to share equally, but Sis suddenly recalls Mom wanted her to have the accounts since she “was the one who always helped Mom”. Since Sis was a co-owner and likely had “survivorship” rights, she owns the account now – and there is nothing an attorney can do about it.
What is the best approach? A properly drafted power of attorney.
A “power of attorney” has nothing to do with appointing lawyers. The word “attorney” has its roots in an old French Norman word for “legal substitute”. A “power of attorney” is simply a document signed by someone called the “principal” (that is, YOU) appointing an “attorney-in-fact” or “agent” to manage some or all of the principal’s financial and business affairs.
The terms of the power of attorney control what the agent may, or may not, do. If the document covers a broad spectrum of duties, then it is a “general” power of attorney. An Agent can be given very broad powers, and if that makes the Principal nervous the instrument can require the Agent to secure some other person’s permission.
It used to be that a power of attorney would lapse when the Principal became incapacitated. That did not do any good if what was intended was to cover the situations when the principal did become incapacitated. The law stepped in and provided that a power of attorney could be “durable” (or be valid after the incapacity of the principal). Most powers of attorney now are “durable”.
Here’s the point: Don’t put the kids on the accounts as a joint owner. Instead, execute a power of attorney that grants the sorts of powers to the kids you are comfortable with to take over business affairs when, and if, they need to. In the meantime, keep the accounts in your name.
Downside: Some fees to a lawyer. Upside: Avoid a train wreck.