By Andrea Capita, Esq.
If you, as an adult child, notice that your parents are struggling to manage their finances, you may believe that the easiest way to help them is by adding your name to their bank account. In fact, we have had many clients who have been advised to add their child’s name on an account for convenience purposes. The common rationale is that by becoming a co-owner you can ensure that bills are paid on time and interact with the bank on their behalf. While the intention may be good (let’s ignore the issue of a non-lawyer giving legal advice), the reality is there are serious consequences to making any changes in ownership for a bank account.
Exposure to Creditors
Many adult children do not realize that if they add their name to a parent’s bank account, that asset is now accessible to creditors. If you are in the middle of settling a divorce, have to file for bankruptcy, or have a judgment entered against you, the account is now available to those creditors as a means to satisfy their claims. It does not matter that you did not fund the account. Creditors have the ability to levy the account and collect whatever they can because the child’s name is on the account.
If Medicaid for Long Term Care is a possibility within the next five years for your parent, it is never advisable to add your name to their bank account. The caseworker processing the Medicaid application will do a full review of the past five years of account statements and ask for an explanation of certain transactions. If the adult child does not keep proper records of all expenditures made on the parent’s behalf or if the caseworker finds that funds in the account were used to pay for the adult child’s own expenses, the caseworker is very likely to assess a penalty, causing the parent to be ineligible for Medicaid for a period of time. In that case, the entire family could be left scrambling to find a way to pay for the parent’s continuing care until the penalty period ends.
Additionally, being co-owner of a parent’s account can be equally troublesome for the adult child with respect to eligibility for government benefits. Indeed, if the adult child ends up having a need for Social Security Insurance or other asset/income tested government benefits, the funds in the account will likely be treated as available to the adult child and thus cause the adult child to be ineligible for those much-needed benefits.
Estate Planning Issues
When your parent passes away with a co-owner listed on their account, that asset becomes the property of the surviving owner operation of law and is not controlled by the deceased parent’s Will. If there are multiple siblings, the surviving owner of the account is under no obligation to share the proceeds of the account with their siblings.
What is the Alternative?
The best option to help your parent is to have him or her execute a Durable Power of Attorney. A Durable Power of Attorney provides the agent (child) with the ability to perform financial and business transactions on their behalf to ensure that your loved one’s affairs are properly managed.
We offer a free one-hour consultation to review these important details with you and your parent. Our services are available for clients throughout New Jersey, New York and Pennsylvania. Please reach out to us today to schedule an appointment at 908.204.3477.
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