An online poster recently asked the following question:
My sister's name is on the savings account with my mother. If my mother dies, does the account become hers?
This is a common scenario and a good question. People often add a child’s or other person’s name to a bank account. The reasons really boil down to one of two things, and maybe both:
- Help with paying bills; and/
- To transfer ownership of the account upon death.
When I meet with clients, I find that many of them, especially older clients who have no living spouse, have added other people to their bank accounts, but they often do not know the answers to these questions when I ask them:
- Is it a joint tenancy account?
- Or is it an account for convenience only?
A joint tenancy account makes the added person a “joint tenant with a right of survivorship”. That means that the added person becomes a co-owner of the account. The money in the account becomes equally the both owners’ money. Both owners can take money out, and the surviving owner will become the sole owner when the other account owner passes on.
An account in which a name is added for convenience does not create any ownership interest at all. The added name is “for convenience only” to allow that person access to the account only for the convenience and benefit of the owner of the account. The person whose name is added is a fiduciary, meaning that she has a duty to be loyal to the account owner, to use the funds in the account only for the benefit of the account owner and to avoid any self-dealing (use of the money for her own benefit).
I am shocked, but no longer surprised, that most people have no idea which kind of account they have created! It is an indictment of bank personnel who help people open accounts, but that is another topic.
The difference is significant. Both types of accounts have their place. The key to which one is the right one is in what the account owner intends and which type of account makes sense in light of the facts, circumstances and ultimate goals.
A Durable Property Power of Attorney is a better option than adding a name to a bank account for convenience only. Adding a name to an account only gives access to that one account. A Power of Attorney allows the “agent” (the person granted the power) access to all accounts and the authority to deal with all of the assets of the person creating the power (the “principal”). If an elderly person needs a safety net, not only someone to pay bills but to manage all of her affairs, a Power of Attorney is a much better option.
A joint tenancy account is a simple, straight forward way to pass on assets to a loved one upon death. It is a very limited estate plan, however. If the person is not trustworthy, she could wipe out the account for her own benefit, and there would be no recourse. She is an owner. If there is more than one heir or person the owner wants to leave her assets to, a “payable on death” designation is a better option. It does not convey immediate ownership, and an account can be made payable on death to multiple persons.
A Will or a Trust offer more complete and comprehensive estate planning tools than adding names to a bank accounts, but powers of attorney and payable on death accounts can be used as a simple, inexpensive and easily accomplished estate plan. In the question that was asked by a real person at the beginning of this piece, the answer is: it depends. If the account is a joint tenancy account, the person asking the question would not get any benefit from that account on her mother’s passing; it would become her sister’s account on her mother’s death. Whether that is what the mother intended is another question.