If you’re older, and concerned about keeping up with your bill-paying and banking, you may have considered adding a son or daughter to your checking account. Making someone a co-owner means they can easily help you out by writing checks, making deposits, or getting cash for you. This arrangement can work well—but sometimes it backfires badly. Fortunately, you can accomplish your goal without the potential problems by setting up a convenience account or creating a durable power of attorney.
Why Not Just Add a Co-Owner?
It sounds perfect to add a co-signer on your bank account. That way, if you were sick or just didn’t feel up to keeping on top of your monthly bills, your offspring could write and sign the checks for you. And down the road, after your death, the child whose name is on the account as a co-owner could use the money in the account as a ready source of cash for funeral and other expenses. Your other assets, after all, may not be easy to get at quickly—some assets may need to go through probate, which takes months.
So what’s the problem? There are several potential issues.
Misuse. Of course you don’t think your child would use the money for anything but your benefit, but it happens. Aside from outright dishonesty, pressure from a spouse or creditor could push a child to “borrow” money that never gets paid back.
Creditors. If your co-owner gets into debt trouble, his or her creditors could try to seize the account. In a divorce, the co-owner’s spouse could claim that some of the funds belong to the co-owner.
Sibling conflict. The person you make a co-owner of a joint account will legally inherit the money in the account after your death. (Almost all joint accounts come with what’s called the “right of survivorship,” which means the surviving co-owner keeps the money.) Is that what you want—or do you intend for the money to be split among all of your children? You may think everyone understands your wishes, but the account co-owner won’t be legally obligated to share the funds after your death. (The other siblings might be able to sue over the money, and prove that you didn’t mean it to be a gift—but that’s little consolation, given that a lawsuit is guaranteed to severely deplete both family harmony and money.)
Durable Powers of Attorney
The best way to give someone authority over your financial matters is to sign a document called a “durable power of attorney for finances,” naming someone you trust as your “attorney-in-fact.” This gives the person the right to handle financial or property matters for you. (You can give broad or limited authority.) When it comes to your bank accounts, your attorney-in-fact is free to spend your money, with two very important restrictions:
- The funds must be used only for your benefit, and
- At your death, the money is part of your estate; it doesn’t go to the person you named as attorney-in-fact.
Before the attorney-in-fact can start writing checks for you, you should take the signed, notarized durable power of attorney to the bank, so it has the document on file.
Learn more about durable financial powers of attorney.
Another option, in about half the states, is something called a “convenience account.” This kind of bank account lets you give someone authority to use the funds for your benefit only. There’s no right of survivorship, so after your death the money goes into your estate, not to the convenience signer.
A convenience account works like a power of attorney, except that the signer’s authority is limited to the particular account. But it’s the same idea, and the same rule applies: The convenience signer doesn’t own the money, but can use it only on your behalf. Family members won’t be uncertain about whether or not you want the convenience signer to inherit the money in the account, either.
These accounts are authorized by a law called the Uniform Multiple-Party Accounts Act, which many states have adopted. Convenience accounts may be available in other states, too; you’ll have to inquire at your bank.