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Do You Need Power of Attorney if You Have a Joint Account?
Understanding Power of Attorney and Joint Accounts
The Role of Attorney-in-Fact in Power of Attorney
“As you know, a power of attorney (POA) allows another person, the Attorney-in-Fact (AIF), to conduct business on behalf of the principal. The POA authorizes the AIF to sign for and on behalf of the principal.”
Limitations of Power of Attorney in Bank Accounts
A person with Power of Attorney for their parents can’t actually “add” the POA to their bank accounts. However, they may change bank accounts to be jointly owned. There are some pros and cons of doing this, as discussed in the article “POAs vs. joint ownership” from NWI.com.
Pros and Cons of Power of Attorney vs. Joint Ownership
Access and Signing Authority with Power of Attorney
The POA permits the agent to access their parent’s bank accounts, make deposits and write checks. However, it doesn’t create any ownership interest in the bank accounts. It allows access and signing authority.
Joint Ownership and Shared Authority
If the person’s parent wants to add them to the account, they become a joint owner of the account. When this happens, the person has the same authority as the parent, accessing the account and making deposits and withdrawals.
Fiduciary Responsibility Differences
However, there are downsides. Once the person is added to the account as a joint owner, their relationship changes. As a POA, they are a fiduciary, which means they have a legally enforceable responsibility to put their parent’s benefits above their own.
Inheritance and Ownership Considerations
Account Distribution after the Owner's Death
As an owner, they can treat the accounts as if they were their own and there’s no requirement to be held to a higher standard of financial care.
Sole Ownership in Joint Accounts after Death
Because the POA does not create an ownership interest in the account, when the owner dies, the account passes to the surviving joint owners, Payable on Death (POD) beneficiaries or beneficiaries under the parent’s estate plan.
Addressing Potential Risks and Vulnerabilities
Joint Accounts and Creditor Exposure
If the account is owned jointly, when one of the joint owners dies, the other person becomes the sole owner.
Choosing Between Power of Attorney and Joint Ownership
Another issue to consider is that becoming a joint owner means the account could be vulnerable to creditors for all owners. If the adult child has any debt issues, the parent’s account could be attached by creditors, before or after their passing.
Implementing a Power of Attorney for Bank Accounts
Naming Payable on Death Beneficiaries
Most estate planning attorneys recommend the use of a POA rather than adding an owner to a joint account. If the intent of the owners is to give the child the proceeds of the bank account, they can name the child a POD on the account for when they pass and use a POA, so the child can access the account while they are living.
Providing the Bank with a Copy of the POA
One last point: while the parent is still living, the child should contact the bank and provide them with a copy of the POA.
Resolving Issues while the Parent is Still Living
This, allows the bank to enter the POA into the system and add the child as a signatory on the account. If there are any issues, they are best resolved before while the parent is still living.
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