The Voice is the email newsletter of The Special Needs Alliance. This installment was written by Special Needs Alliance member Robert Mason, a partner in the Savannah elder law firm of MasonCerbone and the North Carolina firm of Mason Law, PC. Bob is certified as an elder law attorney by the National Elder Law Foundation, is past Chairman of the Elder Law Section of the North Carolina Bar, and secretary of the Elder Law Section of the Georgia State Bar. You can e-mail Bob at email@example.com, or visit his website at www.masonlawpc.com.
Many people make mistakes in titling bank and investment accounts. Often advisors and bankers counsel customers to “put your child’s name on the account” or to set the account up as a “pay on death” (POD) account. However well-intentioned the advice, the results of either approach to titling an account can be surprising and unpleasant. Good intentions do not good advice make.
The Allure of Joint and POD Accounts
Often the attraction is probate avoidance. Either a joint account with survivorship features or a POD account will pass as a nonprobate asset and avoid a state-mandated probate process, which can in exceptional cases take several months to a year or longer.
For joint accounts, the attraction is often convenience. Unlike a POD account, during the parent’s lifetime a joint account holder has immediate co-ownership rights, and, thus, immediate access to the account. An older person may feel better knowing that a trusted son or daughter has immediate access to an account “in case something happens.”
The Dangers of Joint and POD Accounts
If the POD or joint account payee is a child with disabilities, the result could be terrible for the child upon the parent’s death because the receipt of the account could jeopardize continuing qualification for public benefits such as Medicaid or SSI.
There are other compelling reasons why a joint account may not be the proper approach:
A Better Way
If the goal is asset management in the event the owner becomes incapacitated, one effective approach is 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” 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 document 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, but if that makes the principal nervous, the instrument can require the agent to secure some other person’s permission before use. (Note: Many banks and financial institutions prefer to use their own POA forms, but a growing number of states have laws requiring the institutions to accept other, often attorney-drafted, power of attorney documents.)
If the goal is to avoid probate upon death of the account owner, the better approach may be a revocable or living trust. The assets in the trust will avoid probate. In fact, a revocable trust can also assist in post-incapacity management of the person’s assets because a successor trustee named in the trust agreement can step in to handle continuing management of all assets held in the trust. Moreover, in contrast to the unlimited access of a joint account co-owner who may have issues with his own creditors, the assets in the trust are protected from the trustee’s creditors.
Finally, all of the above considerations especially apply if the parent has a child with disabilities. There will rarely, if ever, be an appropriate time to name a child with disabilities as the co-owner of a joint account or the beneficiary of a POD account. Carefully consider using a special needs trust, either under a will, as part of a revocable trust, or created as a separate trust document, to hold that child’s intended inheritance. Properly drafted, the special needs trust assets will not jeopardize the child’s continuing eligibility for various public benefits.
Here’s the point: Do not put your children on the accounts as a joint owner. Instead, execute a power of attorney that grants appropriate sorts of powers to an agent whom you completely trust to assume the day to day responsibility for managing your financial and business affairs when and if needed. Alternatively, consider a revocable trust. In the meantime, keep the accounts in your name.
The downside to the advice given here: Some fees to a lawyer. The upside: You may avoid a train wreck.
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