Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones.But while joint accounts can be useful in certain circ*mstances, they can have dire consequences if not used properly. Adding a loved one to a bank account can expose your account to the loved one's creditors as well as affect Medicaid planning.
Once money is deposited in a joint account, it belongs to both account holders equally, regardless of who deposited the money. Account holders can withdraw, spend, or transfer money in the account without the consent of the other person on the account.
Before putting anyone on a joint account with you, you need to be sure you can trust that person because they will have full access to the account. When one account holder dies, the money in the account automatically goes to the other account holder without passing through probate.
One problem with joint accounts is that it makes the account vulnerable to all the account owner's creditors. For example, suppose you add your daughter to your bank account. If she falls behind on credit card debt and gets sued, the credit card company can use the money in the joint account to pay off your daughter's debt. Or if she gets divorced, the money in the account could be considered her assets and be divided up in the divorce.
Joint Accounts and Medicaid Eligibility
Joint accounts can also affect Medicaid eligibility. When a person applies for Medicaid long-term care coverage, the state looks at the applicant's assets to see if they qualify for assistance.
While a joint account may have two names on it, most states assume the applicant owns the entire amount in the account regardless of who contributed money. If your name is on a joint account and you enter a nursing home, the state will assume the assets in the account belong to you unless you can prove that you did not contribute to it.
In addition, if you are a joint owner of a bank account and you or the other owner transfers assets out of the account, this can be considered an improper transfer of assets for Medicaid purposes. This means that either one of you could be ineligible for Medicaid for a period of time, depending on the amount of money in the account.
The same thing happens if a joint owner is removed from a bank account. For example, if your spouse enters a nursing home and you remove their name from the joint bank account, it will be considered an improper transfer of assets.
There is a better way to conduct estate planning and plan for disability. A power of attorney will ensure family members have access to your finances in the case of your disability.If you are seeking to transfer assets and avoid probate, a trust may make better sense.
To learn more, talk to a qualified elder law attorney. Find an elder law attorneynear you.
Created date: 03/19/2009
FAQs
A joint account might damage your credit score
Opening a joint account adds a financial link to the other person. This means companies will look at both of your credit histories as part of any credit checks. If they have a poor credit history, this might lower your chances of acceptance.
What are the problems with joint bank accounts? ›
Cons of joint bank accounts
Co-owners on the account are both responsible for fees, such as overdraft charges. If one holder lets debts go unpaid, creditors can go after money in the joint account. Both holders can see transactions in the account, which can present privacy issues.
Why do you have to be careful when you own a joint checking account with your spouse? ›
Joint Accounts Complicate Taxes, Divorce, and Benefits
Also any withdrawals exceeding $14,000 per year by a joint account holder (other than your spouse) may be treated as a gift by the IRS. This may subject you to gift tax. If joint account holders are married, divorce can change how your joint account is handled.
Is it bad to have a joint account with your boyfriend? ›
A joint account can be a useful place to start, as long as you lay ground rules together for how much you each plan to contribute, how you're going to use the funds in the account and what you'll do if your relationship ends.
What is the rule on joint account? ›
Key Takeaways: A joint account is a bank or brokerage account shared by two or more individuals. Joint account holders have equal access to funds but also share equal responsibility for any fees or charges incurred. Transactions conducted through a joint account may require the signature of all parties or just one.
Who owns a joint account when one person dies? ›
Joint bank account holders generally have the right of survivorship, which grants the surviving account holder ownership of the entire account balance. The surviving account holder retains ownership regardless of which owner contributed the money, and the account doesn't go through the probate process.
Can one person withdraw money from a joint account? ›
Each account owner can get a debit card, write checks and make purchases. Both account holders can also add funds or withdraw them from the account. The money in joint accounts belongs to both owners. Either person can withdraw or spend the money at will — even if they weren't the one to deposit the funds.
Should married couples have joint bank accounts? ›
Previous studies have shown a link between holding a joint bank account and having a higher quality relationship. Perhaps couples with a shared account might prompt each other to consider how their purchase will affect their partners or might facilitate transparency around finances.
How much is safe in a joint account? ›
Under the FSCS, the first £85,000 (as of January 2017) a depositor puts into their account (or £170,000 if your money is held in a joint account) is protected in the event that the bank or building society goes bust.
Who owns money in a joint bank account? ›
If you're married or in a civil partnership, money in a joint account belongs to both of you equally.
A joint account can work well if partners can openly discuss money matters and trust each other's financial decisions. However, if there are trust issues or communication barriers, separate accounts might be more appropriate to prevent conflicts and misunderstandings.
Should couples have a joint account for bills? ›
Should couples have a joint account for bills? Splitting the costs of a shared household can be a bit of a headache, but a joint account could be a handy way to make things easier. Joint accounts allow you and your partner to pool some of your incomes into one place.
What's the best bank for joint accounts? ›
Best Joint Checking Accounts for 2024
- Best Overall: Ally Bank.
- Best for Parents & Teens: Capital One.
- Best for Frequent ATM Users: Axos Bank.
- Best for Branch Banking: Wells Fargo.
- Best for High Interest: Presidential Bank.
- Best for Cash Back: LendingClub Banking.
- Best for Debit Users: Liberty Federal Credit Union.
Contacting your bank, credit card and loan providers
Ask your bank to change the way any joint account is set up so that both of you have to agree to any money being withdrawn, or to freeze it. Be aware that if you freeze the account, both of you have to agree to 'unfreeze' it.
Can someone steal money from a joint account? ›
If an account is under both names, either party has the right to ALL of the funds in that account at any time. Therefore there is no theft if the person is removing something that they are entitled to have.
What are the disadvantages of opening a joint bank account? ›
Disadvantages of opening a joint account
Keep in mind that you won't have control over the transactions and withdrawals the other person makes in the same account. Because of this, it's important to have open lines of communication and manage everyone's expectations prior to opening a joint account.
Can my wife empty your joint account? ›
If the funds in your joint bank account are considered separate property and owned exclusively by your spouse, they may legally be able to drain the account. Similarly, even if the account is community property, a spouse may be able to withdraw money for reasonable living expenses, legal fees, and children's expenses.
Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones.But while joint accounts can be useful in certain circ*mstances, they can have dire consequences if not used properly. Adding a loved one to a bank account can expose your account to the loved one's creditors as well as affect Medicaid planning.