My Name is on Mom’s Checking Account (Part 2)
Last week we were discussing Melissa and her mom. Melissa has been handling Mom’s finances for several years as agent under Power of Attorney – or so she thought. We discovered that actually Melissa is a co-owner on the account. She can still write checks, pay Mom’s bills, and access her account so does it really matter that she is co-owner rather than acting as an agent with respect to the account?
Melissa’s co-ownership carries with it certain legal rights and responsibilities. Firstly, if Melissa is a co-owner, the assets in Mom’s account are now subject to Melissa’s creditors being able to reach it. For example, if she is sued and a judgment is obtained against her, the account can be accessed to satisfy that judgment. We can’t say it’s Mom’s money. The same thing applies if Melissa files for bankruptcy. Any account which she is listed as a co-owner may be seized by the bankruptcy court and trustee.
If Melissa is married and goes through a divorce, the joint account might be considered marital property in a divorce proceeding. Melissa’s husband could assert a right to one-half of the account. It doesn’t matter that it was always Mom’s money and that she didn’t intend to give it to Melissa.
Ownership means that Melissa can legally take the money for her own purposes, even though that wasn’t the intention. That may not be a concern in her case but in some instances it could be an issue. It might be tempting for a co-owner to “borrow” some of the money in the account. That could be a real problem if the parent needs the money for his/her care needs.
Co-ownership of a bank account typically means joint with right of survivorship. What most people don’t realize is that this changes how that account passes when an owner dies. Mom’s account will not pass under her will to Melissa and her 2 siblings, but instead, will pass only to Melissa as the surviving co-owner, even though Mom never intended it. Melissa can honor her mother’s wishes and share the proceeds with her brother and sister, but legally she is not required to do so. If she does, it will be considered a gift from Melissa, potentially subject to gift tax payable by Melissa.
This unexpected change could cause bad feelings amongst family. Let’s alter the facts a bit. What if Melissa maintained that Mom really intended to leave her the account in gratitude for the time Melissa spent on Mom’s behalf? If she never communicated that to her other children, Melissa is left to explain it. At worst, her siblings could sue her to try to establish that Mom never intended that result. At best, the bad feelings could linger for years and cause family disharmony.
To the untrained eye, three little letters “POA”, may not seem like much. But as you see, without proper legal guidance, they can add up to a whole lot of heartache for families.