Adventures at the Bank

PART II - Fake Power of Attorney

Many clients visit their bank to set up a procedure that will allow one of their children to help pay bills or take care of other things at the bank. While that should be a very simple arrangement, it often veers off course because the bank can offer a number of different options. When sorting through these choices many people are either confused or unaware of the decision that they are making.

Even though the client is looking for help with banking and bill paying during their lifetime, the bank often confuses matters by bringing up the question of what happens after death. Banks often highlight the fact that a bank account can be “frozen” after death so that checks cannot be written to pay bills. Having raised the prospect of an apparent looming catastrophe after death, the bank will recommend a joint bank account to save the day.

Switching from a Financial Power of Attorney to a joint bank account involves a number of problems. First, the difficulty of a bank account being “frozen” is grossly exaggerated. The difference between getting access to money in a supposedly “frozen” bank account by using a Power of Attorney, and having access to a joint bank account, can be measured in days. A few days’ inconvenience is not enough to shift account ownership to a joint bank account.

Second, a joint bank account makes any money in the account the property of each joint owner. The joint account owner does not have access only at death. Either account owner can withdraw the entire account at any time. It is essentially a gift to the family member you put on the account. Most people would say that this is not a big deal because they trust their children. However, along with the children come all of the children’s financial and family issues - many of which the children do not control. If the child has creditor issues, loses their job, divorces or dies, then the parent’s joint bank account is dragged right into the middle of the child’s business.

Finally, a joint bank account generally upsets the estate plan. The joint owner named on the bank account owns the bank account during your life and after your death. So, for example, if your general plan is to divide your assets equally between your children, then an account with a parent and child as joint owners will start off on day one with a problem. The child named on the account will automatically have more than the other children. The family will need to adjust and calculate how to treat everyone equally. In some families this may not seem like a big deal. However, the point is that the family does not need to have this problem at all.

When thinking about joint bank accounts, it pays to remember that a solution that creates new problems is not much of a solution. Setting up a Power of Attorney to let your family help pay your bills during your life is simple. Managing your assets after your death is a completely separate problem that is best handled by your estate plan, your Will or your Revocable Trust. Mixing the two ideas does not make things better or easier.

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