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The Risks of Joint Account Ownership: Why Proper Estate Planning is Crucial

Recently, I encountered a potential client with significant joint accounts shared with their child. They justified this arrangement as a matter of convenience, facilitating bill payments, bank communications, and easing the transfer process if anything happened to them.


When you have a joint account with someone, they have the same access to all the funds as you do. This means they can withdraw all the funds without your knowledge or permission. While we may trust our children, let's consider it from another perspective.

Imagine your child gets into a car accident and gets sued. Those joint assets may be claimed. Or if they incur significant debt, the joint assets are available to creditors.

This goes beyond mere access to your assets. In some situations, adding them as a joint account owner may unintentionally be considered a gift.

Hopefully, you realize by now that putting a child or anyone other than a spouse as a joint account owner may not be the best idea. So, what are the potential solutions?
Practical Solutions to Avoid Joint Account Risks
1. Establish a Trust
One of the most practical solutions is to set up a trust, either revocable or irrevocable. A trust allows others limited control of the assets while you maintain ownership. You can even decide on the specific terms and guidelines of the trust when establishing it. If anything happens, the trust can address incapacity and even death while avoiding probate.
2. Establish a Durable Power of Attorney (DPOA)
A Durable Power of Attorney (DPOA) remains in effect even if you become incapacitated. This ensures someone you trust can manage your financial affairs without court intervention.
3. Create a Transfer on Death (TOD) Account
If you are concerned about avoiding probate and ensuring smooth asset transfer upon death, a TOD account can ensure your assets are transferred according to your intentions.
4. Designate Beneficiaries on All Accounts
Besides setting up a TOD account, ensure all your financial accounts have designated beneficiaries. This includes retirement accounts, life insurance policies, and brokerage accounts. This ensures a smooth transfer of assets without going through probate.
5. Use Payable on Death (POD) Designations
Similar to TOD accounts, Payable on Death (POD) designations can be set up for bank accounts. This allows the account to transfer directly to the designated beneficiary upon your death, bypassing probate.

6. Utilize a Qualified Personal Residence Trust (QPRT)
If you own a home, a Qualified Personal Residence Trust (QPRT) allows you to transfer your residence into a trust while retaining the right to live there for a specified period. This can reduce estate taxes and protect the home from creditors.
7. Review and Update Your Estate Plan Regularly
Life circumstances change, and so should your estate plan. Regularly review and update your estate plan to ensure it reflects your current wishes and financial situation. This includes revisiting beneficiary designations, trust provisions, and power of attorney documents.
Final Thoughts

It is important that clients have access to resources like trusts, wills, living wills, healthcare directives, POA documents, and guardianship papers. At SYKON Capital, we provide these resources to all our clients at no additional cost because we believe every client should have these essential estate planning documents in place.

At the very least, please consult with your attorney, accountant, and financial advisor before making any changes to the ownership of your accounts. A 15-minute conversation can save a lifetime of angst.

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