Joint Bank Accounts May Be a Risky Option for Avoiding Probate

One of the most common techniques used to avoid probate is also one of the most risky.  Many believe that creating a joint bank account with one of their children or adding the child to an existing account is a good way to ensure that their bills are paid if they become incapacitated or pass away. They see an advantage when the funds in the account will be immediately available to the child without having to wait for a court to appoint the child as a guardian or for the account to be processed as an asset of the estate.  But, while convenient, this technique is fraught with pitfalls.

The process is fairly easy.  Go to your bank with the child and have him or her complete a signature card.  Once this is done, any – or all — funds in the joint bank account are available to and may be withdrawn by either party.  The problem with this method is that it provides no protection for either party.  If you have expenses such as nursing home or assisted living care bills, the funds in the account are not a protected asset because they are still available for your use.

Where the child is concerned, because the funds are available to him or her, they may be subject to any collection efforts against the child.  This could be the result of bankruptcy, divorce or even the child’s own disability or death.   If the child injures or kills someone in a car accident, the funds in the joint bank account could be taken to satisfy the judgment.

While a joint account can be useful to give your child immediate access to funds needed when you die, such as for funeral expenses or your debts that may be due, you should carefully consider the disadvantages outlined above.  While none of those circumstances may seem likely now, no one can predict the future.  With the high divorce rate in this country, an unstable economy and high unemployment rates, it isn’t impossible for the money in the account to be lost.

Other options are available such as creating a “payable on death” (POD) account or even creating a trust and including the account as a trust asset.  Unlike a will, a trust does not have to go through probate if properly funded, thus avoiding a long wait before the funds are accessible.  The best choice is to consult with an experienced estate planning attorney to determine the best option for your circumstances.