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Estate Planning – Joint Ownership vs. POA&POD

Should I add a joint owner to my bank account? Joint ownership vs. POA&POD

By Attorney Jennifer Kahl

It is common for older adults to add a trusted family member as a joint owner on one or more of their bank accounts. There are two reasons for this: (1) they recognize that they may need help managing their finances as they age, and (2) they want someone to have easy access to their money after they die. Adding someone as a joint owner to the bank account does accomplish these goals; however, there are consequences. For some people, a Power of Attorney (POA) along with a Payable on Death (POD) designation accomplishes the same goals with less risk.

 

Access to money during your life Access to money after your death
Joint Ownership: Yes Yes
Power of Attorney: Yes No
POD/TOD: No Yes

 

Understanding Terms

  • Joint ownership means that you and the helper own the account together. The bank will recognize the helper’s authority as much as your own, both during your life and after you die. Your helper will have easy access to your account to do whatever needs to be done. When you die, your account will not be “frozen” or “locked” because there is still a surviving joint owner.
  • A Power of Attorney (“POA”) is a legal document where you grant someone (your “agent”) the authority to act on your behalf. Adding someone as a POA Agent on your account does not transfer ownership. The money is still yours; the Agent only manages the money for your benefit. The Agent’s POA authority dies when you do. Therefore, your Agent will not have access to your money after you die.
  • A Payable on Death (“POD”) designation simply designates someone to collect your money after you die. The term Transfer on Death (“TOD”) is also used, and it means the same thing. A person named as POD has no access to your money during your lifetime. After you die, your account will be temporarily frozen. Once the bank receives your death certificate, the bank can give your money to the POD and close your account.

Risks to Joint Ownership. While Joint Ownership is very convenient, there are risks and consequences to this arrangement.

  • Lack of Accountability. A joint owner has no legal responsibility to account for his actions with your money. Legally, he can use your money for whatever he wants (even if his actions betray your trust). In contrast, your POA agent has the legal obligation to act in your best interest and give you an accounting/report of everything he does as your agent. Other people (like your family members and Adult Protective Services) can also demand an accounting from your POA.
  • Misuse. If your helper has dishonest intentions, it will be very easy for him to misuse your money as a joint owner. Though the two of you may have an understanding that the money is still “yours,” the law says that it belongs to both of you. So if the helper takes your money, you will have a hard time holding him legally accountable. In contrast, your POA agent has no legal ownership of your money. He has a legal duty to put your interests above his own, and to only use your money for your benefit. Therefore, if your POA takes your money for himself, it is a clear case of embezzlement and you have the law on your side.
  • Liability. Let’s say that your helper is the most honest person on the face of the Earth. Even so, your money is subject to additional risk by naming him as a joint owner. If your helper causes a car crash and the injured person gets a judgment against him, the injured person can go after your helper’s money. And because your money is also your helper’s money, that means your money is now on the hook for your helper’s legal and financial liabilities.
  • Loss of control/Can’t revoke. Once you add the helper as a joint owner to your account, the helper now has a say in what happens to your account. For example, you can’t close the account or remove the helper from the account without the helper’s consent. In contrast, if your helper is merely a POA or POD, you retain unilateral authority to do whatever you please with your money. You can change your POA or your POD at any time.
  • Ownership after your death. When you die, the joint owner on your account now owns 100% of the money in your account. He has no legal obligation to share that money with anyone, regardless of what your Will says. Now, if you want the joint owner to keep all the money in the account when you die, this isn’t a problem. But if you were expecting that money to be shared among other beneficiaries, those other beneficiaries may miss out when your joint owner chooses to keep all the money for himself.

 

Drawbacks to POA&POD. There are far fewer risks to the POA&POD strategy. However, there are some inconveniences.

  • Dealing with banks. Unfortunately, there are many people who have been exploited by POAs, so banks and financial institutions are understandably wary of them. Banks often make it very difficult for the POA to get added to the account. In contrast, banks make it much easier to add someone as a joint owner (which is ironic, seeing as it’s much easier to exploit someone as a joint owner than as a POA). So setting up a POA&POD strategy may be more inconvenient than simply adding a joint owner.
  • Frozen Accounts. If you don’t have a surviving joint owner on your account, your account will be temporarily frozen after your death. Once your POD produces the death certificate, the financial institution will give your POD the money and close your account. But since it usually takes a week or two to get a death certificate, there will be a short time when no one has access to your money. But since this is usually just a few weeks, it is not likely to cause any serious problems.

 

 Joint Ownership  POA&POD
Pros Pros
–    Access during your life

–    Access after your death

–    Banks make it easy

–    No frozen account after death

 

–    Access during your life

–    Access after your death

–    More accountability

–    No Exposure to helper’s liabilities

–    You don’t give up control

–    POAs and POD are always revocable

–    Can tailor PODs to match your Will

Cons Cons
–    Lack of accountability

–    Easier to exploit

–    Exposure to helper’s liabilities

–    Loss of control

–    Irrevocable without helper’s consent

–    May not match the terms of your Will

 

–    May be more challenging at the bank

–    Temporarily frozen accounts when you die

 

Conclusion

If you go to the bank and say “I would like to add this person to my account,” chances are that you will leave with that person as a joint owner on your account. Even though there lots of ways to “be on an account,” financial institutions rarely take the time to educate their clients about the options and their respective consequences. Banks simply default to adding a joint owner. Therefore, if you’ve decided that you want a different arrangement (such as a POA and/or POD), you must specifically ask for that. It is important that you educate yourself about these matters prior to visiting your financial institution.

Jennifer Kahl

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I started working in geriatrics when I was 18 years old. I began as an activities coordinator at an assisted living facility and later received my certified nursing assistant license. These credentials landed me several jobs in hospitals and care communities while I attended college and law school. When deciding what area to practice after law school, elder law was the natural choice. To me, elder law is all about family. It is everything you might do to prepare yourself and your family for a time when you are incapacitated or deceased. These are sensitive, personal decisions that need to be met with compassion and understanding. If illness or death has already occurred, I focus my efforts on protecting your assets and administering your estate as smoothly and quickly as possible. I find this work both intellectually and emotionally satisfying. When I’m not at the office, I’m busy being “Mom.” With three little kids, life at the Kahl Residence is never boring. Some of our favorite activities include riding bikes, hosting backyard cookouts, and serving our church family. We work hard and we play hard. I have been blessed with many good things in my life, and my goal is to help you take care of the good things in yours.