Joint Bank Accounts as an Estate Planning Tool

A Word of Caution

Holding a joint bank account is common among married couples throughout Florida, but you don't need to be married to place more than one person on a checking or savings account. There are instances in which two or more people may wish to share joint funds, and holding an account in multiple names ensures that each account holder has access to the shared funds when necessary. Many times, I've seen instances where aging parents like to have an adult child named with them on a bank account, both for convenience, and as a way for the adult child to access the account should their parent be unable to do so. In many ways, a joint account acts as a less complicated method of making assets available to another party without the use of a trust or durable power of attorney; however, one should be aware of the major differences and legal implications of each approach.

The basic idea behind a trust is for certain assets to be placed into a trust to be managed by a trustee, or multiple trustees, on behalf of the trust's beneficiaries. In other words, the trustee legally holds the assets, but the assets must be used for the benefit of the beneficiaries in accordance with the terms of the trust instrument creating the trust. There are many kinds of what are known as irrevocable trusts which are used to achieve specific objectives from asset protection to tax planning. Relevant to this discussion, though, is a specific kind of trust known as a revocable trust.

Florida law allows for the creation of a self-settled revocable trust in which the creator of the trust may place assets into the trust while retaining use of those assets for the remainder of their life. The creator of the trust, known as the settlor, has the option to revoke the trust at any time and restore the assets to their own name and to otherwise use the assets in the trust for their own purposes, as the settlor acts as the initial trustee and beneficiary of the revocable trust. If assets remain in the trust at the settlor's death, a successor trustee will be appointed based on the terms of the trust, and the remining assets will be used by the successor trustee for other beneficiaries in accordance with the trust document. If the settlor/initial trustee of a revocable trust is determined to be incapacitated, a successor trustee may be able to step in and manage the assets for the settlor in accordance with the terms of the trust in order to take care of the expenses and other needs of the settlor while the settlor is still alive.

While the use of a revocable trust can help to ensure access to a settlor's assets in the event of incapacity—for example: money from the revocable trust can be used to pay the bills for the settlor, such as their mortgages, taxes, etc., should the settlor not be able to do so on their own—a trust can be complicated and this does not necessarily avoid court action in making a determination regarding the settlor's incapacity. Additionally, a revocable trust is generally used for much more than simply ensuring access to funds for the benefit of the settlor in the event of incapacity, which is what makes a revocable trust a much more complicated solution for just this single problem.

Alternatively, one may be inclined to draw up a durable power of attorney to grant another individual access to certain assets. A power of attorney may be very broad, or it can limit the authority of the person selected, known as the "attorney in fact," to specific assets named in the power of attorney document. A "durable" power of attorney means that the document will still be valid if the person granting the power becomes legally incapacitated. The durable power of attorney is less complicated than a trust and will ensure that the person selected as the attorney in fact has access to the desired assets to use for the benefit of the individual creating the durable power of attorney; however, the authority granted to the attorney in fact will immediately cease upon the principles death—This could be problematic in certain scenarios, such as when a parent wants to make sure that a child can immediately continue making mortgage payments on the home in the event of the parents death.

Having looked at both the use of revocable trusts and durable powers of attorney, it is understandable why some may find adding an adult child to their checking account an easy solution. For one, all the paperwork and other details will be handled with a trip to the bank's local branch. Second, adding an adult child to a bank account solves two problems simultaneously. As stated in Florida Statute 655.79 (1):

"Unless otherwise expressly provided in a contract, agreement, or signature card executed in connection with the opening or maintenance of an account, including a certificate of deposit, a deposit account in the names of two or more persons shall be presumed to have been intended by such persons to provide that, upon the death of any one of them, all rights, title, interest, and claim in, to, and in respect of such deposit account, less all proper setoffs and charges in favor of the institution, vest in the surviving person or persons."

Not only will the addition of an adult child to a bank account ensure access to the funds held by the parent, but in the event of the parent's death, the adult child will immediately become the sole account holder of the remining funds, potentially avoiding the necessity of further probate proceedings—at least as to those assets. For many in Florida, this may seem like the perfect scenario, especially for those of whom have most of their non-tangible assets in one account. Before adding a son, daughter, or whomever to your account, there are several things you need to be aware of, or you could be putting everything at risk.

To state the most obvious concern first, a joint account is just that: An account that belongs to both account holders. Either person listed on the account can do what they see fit with ALL the funds in the account. The bank—and the law—make no distinction about what dollars belong to whom. Either party named on a bank account may at any time withdraw as much money from the account as they wish at any time, and there is no legal obligation to use the money for any specific purpose. This brings us to the second problem that people likely don't think about when adding an adult son or daughter to their bank account for convenience: What happens if one of the joint account holders has a judgment against them and someone comes looking to collect?

If it just so happens one of the joint account holders ends up with a judgment against them someone is looking to collect, the joint account could be in danger of garnishment, risking funds that may very well have been deposited by the innocent party. There are special exceptions that apply to joint accounts for married couples, but those same protections do not apply to unmarried persons holding a joint account together. Not to mention, if an adult child named on a joint account finds themselves in the midst of a divorce, account assets will likely be discoverable by the other spouse in the divorce, and depending on the circumstances, the assets could be declared part of the divorce assets being split up between your adult child and in-law. These are just two quick examples of disastrous legal problems that may occur, so it's easy to see that extreme caution should be exercised before naming an adult child as a joint account holder on your checking or savings account.

As a final note, if the objective is simply to make sure that someone receives the account assets in the event of your death, and access to the account is not a concern during your lifetime, it is possible to name a beneficiary of a checking or savings account in Florida. Florida Statue 655.82 outlines the rules regarding pay on death accounts. By naming a beneficiary the person selected will not have access to your funds during your lifetime, but the beneficiary will be able to contact the back after the death of the last surviving account holder and will be provided the funds without the necessity of obtaining a court order from the decedent's estate beforehand. This can be a very effective tool for estate planning if the sole objective is transfer of the money at death, as opposed to joint access of the funds, and can even be used in conjunction with a durable power of attorney to achieve both objectives without the complications involved with a living revocable trust.

No matter what your objective may be, you should always proceed with caution before adding another individual to your bank accounts, and if you are unsure of how to accomplish your objectives, you should always consult with a professional before taking any steps that may lead to legal complications down the road.