Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones, and such accounts are sometimes referred to as "the common person's estate plan." But while joint accounts can be useful in certain circumstances, they can have dire consequences if not used properly. Adding a loved one to a bank account, savings bond, or investment account can affect Medicaid planning as well as expose your account to the loved one's creditors.
When a person applies for Medicaid long-term care coverage, the state looks at the applicant's assets to see if the applicant qualifies 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 to the account. 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. Proving that would often require obtaining old financial records, which can be impossible to locate with all the financial institutions that have merged or gone out of business in recent years. Even if you can produce the records, you will often have to have a hearing before an administrative law judge and, in some cases, may have to pursue an appeal in the circuit court. As a practical matter, to have any chance of success, you would need the assistance of an attorney, so there will be attorney fees.
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 her name from the joint bank account, it may be considered an improper transfer of assets.
Another problem with joint accounts is that the account is vulnerable to all the account owners' 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, your account could get caught up in the divorce. If the joint owner has a bankruptcy or lawsuit, your assets in the joint account could be lost.
In addition, you cannot plan for contingences with a joint account. For instance, your Last Will and Testament may provide that your assets are to be distributed in equal shares to your two children. The Will may contain a contingency provision that if one of your children does not survive you, that their share of the inheritance passes to their children. That can make a lot of sense, because if your grandchildren's parent is deceased, those grandchildren may certainly need the money if they are young. However, if your bank account is a joint account or payable on death account, your grandchildren will not receive your deceased child's share because under joint ownership, everything passes to the surviving joint owner, which, in this case is your other child. Joint ownership overides a Will. In a Will or Trust you can plan for such contingencies, including protecting assets for young beneficiaries or family members who become disabled.
Finally, you need to be sure you can trust the joint account holder because he or she will have full access to the account. Either account owner can take money out of the account regardless of who contributed to the account.
There are better ways to conduct estate planning and plan for disability. A power of attorney and Trust will ensure that a person of your choice can manage and access your assets for you if you become disabled. If you are seeking to transfer assets and avoid probate, a Trust may make better sense. To learn more, contact our office.
Andrew Byers is an Elder Law attorney in Auburn Hills, Michigan and assisting clients with estate, long-term care and asset protection planning is part of his elder law practice.