Effect of Adding Someone to Your Bank Account

Clients constantly, often at the suggestion of their bank, add someone to their bank accounts.  This could be an elderly parent adding a child so they can write checks for them, or perhaps adding the names of beneficiaries so they own the account at death or can use that money to help someone else.  Regardless of the reason, it is critical to understand that adding another person to your bank account provides both of you with complete access to the account and has a big impact on your estate plan, as well as other issues such as taxes or Medicaid.  It is critical to understand these implications and the different ways you can do this, explains the article “What are my rights when someone adds me to a bank account?” from Lehigh Valley Live.

A joint account is a bank or investment account shared by two individuals, although more than two people may be on an account. They have equal access to funds, as well as equal responsibilities for any fees or expenses associated with the account. If there are transactions, depending upon the rules of the institution, all owners may be required to sign documents. The key is how the account is titled. That’s the controlling factor in determining how the assets in the account are divided, if one of the owners dies. There are several different types of joint ownership.

One is “Joint Tenants with Rights of Survivorship,” or JTWROS. If one of the account owners should die, the assets in the account go directly to the surviving account holder. These assets do not go through probate.  Often people assume this is what they have on their bank accounts, but in most cases this is not the default setting.

Then there’s “Tenants in Common,” or TIC. With TIC, each individual account owner has the right to designate a beneficiary for their portion of the assets upon their death. The assets might not be split 50/50. How the account is titled lets the account owners divide ownership however they want.  This is important because in an estate situation, the decedent owns 50% of the account.  So, if client leaves a Will giving everything to their neighbor, instead of their spouse

Another one: “Joint Tenants by the Entirety.” This describes a married couple who own real estate or a financial account as a legal entity with equal ownership. Neither person may transfer their half of the property during their lifetime or through a will or a trust. When one spouse dies, the entire account goes to the surviving spouse and it transfers without passing through probate.  As an aside, this isn’t applicable in all states.  From my knowledge, it exists in Pennsylvania, but not Texas or New York.

I should note as well that Texas includes the ability to add a check signer to bank accounts.  In theory this means a person, such as an adult child, who is given express authority to sign checks on your behalf.  For what it’s worth, clients frequently believe what they are doing is adding a name to an account “just to write checks.”  However, I have found that banks always create one of the joint account options listed above.  Simply put, it is easier and cleaner for them, and so that’s how they do it.

Power of Attorney or POA is a completely different thing. A POA is a legal document giving a person the authority to act on behalf of another person for a specific transaction or general legal and financial matters. Just as there are numerous types of joint ownership, there are numerous types of POA.

A general POA gives a person the power to act on behalf of the principal for all legal, property and financial matters, as long as the principal’s mental capacity is sound. The Durable POA gives authority to a person to act on behalf of the principal, even after the principal becomes mentally incapacitated. Special or limited power of attorney gives authority to act only for specific matters or transactions. A Springing Durable POA provides authority to act only under certain events or levels of incapacitation, which is defined in detail in the document.

You can be both a joint owner of an account and a power of attorney. These are two different ways to help a parent with financial and legal activities. An estate planning attorney can help create the POA that best fits the situation.

Reference: Lehigh Valley Live (June 10, 2021) “What are my rights when someone adds me to a bank account?”

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Making Medical Decisions During Incapacity

Medical decisions during incapacity are made by the individuals named in a Medical Power of Attorney and Living Will following your wishes.

Today, there is greater awareness that incapacity from disease or injury is not a hypothetical. It’s reality, and there are tasks that must be done, as explained in a recent article entitled “Now Is the Time to Protect Your Health Care Decision-Making Rights” from Kiplinger, for making medical decisions during incapacity.

You have a fundamental right to make your own decisions regarding your healthcare decisions.  However, that can change quickly.  Failing to have your healthcare wishes documented properly also leaves your family in the terrible position of having to guess what you want, which puts them in a difficult and stressful position.

An estate planning attorney works with clients to plan how their assets will be distributed after they die (using a will and trusts, among other tools). However, they also help clients prepare for incapacity. Both are equally important, and incapacity planning might even be more important. There are three basic solutions used in most states, although each state has its own specific rules, so you will want to work with an estate planning attorney from your geographic area.

A Living Will (Directive to Physicians in Texas) addresses what you want to happen if you are in an end-stage medical condition or permanently unconsciousness. The living will can serve as an advance written directive for the type of treatment you want to have, or what treatments you do not want to have. If you are unable to communicate your wishes, this document conveys them in a clear and enforceable manner and indicates who can make that decision for you.

A Medical Power of Attorney works differently than a Living Will. This covers health care decision making when you cannot convey your own wishes. You appoint one or more agents to make health care decisions for you. They use their personal knowledge of you and the direction you indicate to make decisions on your behalf.

If you have not executed documents like these before becoming incapacitated, there are laws which provide for default decision-makers.  These laws authorize a list of individuals in order of preference to act as your health care representative and make health care decisions for you. This is the last and worst option.

It is much better for you and your family to have a plan and the proper documents for making medical decisions during incapacity. First, the state decides who will make healthcare decisions on your behalf, based on the law and not based upon people who you feel comfortable making these very personal decisions for you. If more than one person is named and the family cannot come to an agreement as to what your care should be, they may end up gridlocked, and you are the one who suffers.  This may also lead to delay in making the decision as the medical providers have to access who can make the decision based upon your family make-up, all while your medical care needs to be addressed.

Create a plan for your healthcare when you are creating or updating your estate plan. It will give you the peace of mind that, even in the worst of situations, your loved ones will know what you wanted to occur clearly and be able to go forward in following your wishes.

Reference: Kiplinger (April 29, 2021) “Now Is the Time to Protect Your Health Care Decision-Making Rights”

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Estate Planning Checklist

Dying without an estate plan creates additional costs and eliminates any chance your wishes for loved ones will be followed after your death. Typically, people think about a will when they marry or have children, and then do not think about wills or estate plans until they retire. While a will is important, there are other estate planning documents that are just as important, says the recent article “10 Steps to Writing a Will” from U.S. News & World Report.  To help identify those needs, I prepared an estate planning checklist which you can find below.

Most assets, including retirement accounts and insurance policy proceeds, can be transferred to heirs outside of a will, if they have designated beneficiaries. However, the outcome of an estate may be more impacted by Power of Attorney for financial matters and Medical Power of Attorney documents.  To help figure out what you may need, you can use this article as an estate planning checklist.

Here are nine specific tasks that need to be completed for your estate plan to be effective. The documents should be prepared based upon your state’s law with the help of a qualified estate planning attorney.

  1. Find an estate planning attorney who is experienced with the laws of your state.
  2. Select beneficiaries for your estate plan.
  3. Check beneficiaries on non-probate assets to make sure they are current.
  4. Decide who will be the fiduciaries named in your estate plan (e.g. executor, trustee)
  5. Name a guardian for minor children, if yours are still young.

There are also tasks for your own care while you are living, in case of incapacity:

  1. Name a person for the Power of Attorney role. They will be your representative for legal and financial matters, but only while you are living.
  2. Name a person for the Medical Power of Attorney to make decisions on your behalf, if you cannot.
  3. Create a Directive to Physicians (Living Will), to explain your wishes for medical care, particularly concerning end-of-life care.
  4. Tell the these people that you have chosen them and discuss these roles and their responsibilities with them if you are ready

As you go through your estate planning checklist, be realistic about the people you are naming to serve as fiduciaries. If you have a child who is not good with managing money, a trust can be set up to distribute assets according to your wishes: by age or accomplishments, like finishing college, going to rehab, or maintaining a steady work history, and they should not be in charge of your money.

Do not forget to tell family members where they can find your last will and other estate documents. You should also talk with them about your digital assets. If accounts are protected by passwords or facial recognition, find out if the digital platform has a process for your executor to legally obtain access to your digital assets.

Finally, do not neglect updating your estate plan every three to four years or anytime you have a major life event. An estate plan is like a house: it needs regular maintenance. Old estate plans can disinherit family members or lead to the wrong person being in charge of your estate.  See this article for my ideas as to when to update your estate plan and what to consider.  You might find reviewing the estate planning checklist helpful at that time as well.  https://www.galliganmanning.com/when-to-update-your-estate-plan/

An experienced estate planning attorney will make the process easier and straightforward for you and your loved ones.

Reference: U.S. News & World Report (May 13, 2021) “10 Steps to Writing a Will”

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