It seems that seniors are increasingly adding their adult child(ren) as joint owners of their bank accounts to facilitate bill-paying and fraud detection, as/when the senior becomes increasingly incapacitated and needs help.  Indeed a joint owner can help, but it often has unintended consequences.

Here are 5 reasons adding an adult child to your bank account is not a good idea:

  1. Unintentional Disinheritance. A joint account owner will generally inherit the account outright upon the death of the other co-owner, absent some additional documentation to the contrary. Seniors are usually unaware of this when they add their child(ren) as co-owner(s).
  2. Risk of Intentional Loss/Misuse. Jointly-owned bank accounts are generally free of any safeguards or checkpoints on a child’s misuse of the funds, compared to other arrangements.  This can make financial abuse easier for the wrongdoer and more difficult to detect. Often even well-meaning kids get “in over their heads” because it is so easy to take funds with the intention of replacing them, but then lacking the means to ever do so.
  3. Risk of Unintentional Loss. A child’s creditors will usually be able to reach any jointly-owned accounts established by his/her parent(s) (or anyone else) under Michigan law.
  4. Risk of Unintended Outsider Meddling. Sometimes a child added as joint owner of his/her parent’s account will himself or herself become incapacitated for some reason.  In that case the disabled child’s guardian/conservator (or agent under power of attorney) will step into the shoes of the child for purposes of the parent’s joint account and have direct access to the account funds. As a practical matter this means that the parent’s son-in-law or daughter-in-law will be controlling the account in the child’s place.
  5. Ramifications on Child’s Benefits Eligibility. Occasionally the child will need to apply for public benefits (such as Medicaid) after being added to his/her parent’s joint account.  Such an arrangement can disqualify the child for benefits, without an easy “fix” or solution once it is in place.

Fortunately there is an easy alternative for seniors wishing to avoid the above problems – a Durable Power of Attorney.  A well-drafted document of this type by an experienced estate planning lawyer will allow the senior to designate one or more persons to help them while minimizing or avoiding the above problems, and without ongoing court involvement.