redryder wrote:What do you think about the utility and feasibility of converting all available financial accounts to joint ownership? Please talk about the pros and cons of doing so. Thanks in advance.
RedRyder, that’s easy to do but it makes lawyers really uncomfortable.
On the side of the person with Alzheimer’s, it takes care of all of their problems. You’re handling all of their finances and there are no gatekeepers to get in your way. When the person with Alzheimer’s passes away then hypothetically you still have access to the account (“with right of survivorship”) and can take care of their estate.
Except there are significant risks to the person with Alzheimer’s.
When the person with Alzheimer’s gives someone else a durable power of attorney or a revocable living trust, that someone else is legally obligated to handle the assets in a fiduciary manner for the benefit of the person who granted the DPOA or RLT. I’m not a lawyer or a financial advisor, but I don’t think that protection exists for a joint account.
If the joint owner dies before the person with Alzheimer’s dies, then those joint accounts are considered part of the deceased’s estate. That may not have been the intent of the joint account, but the probate court is more likely to side with the deceased’s heirs.
If the joint owner is sued (however the litigation happens) then the entire balance of the joint account may be at risk.
On the side of the person who’s been given the access of a joint account:
In most states, real estate and brokerage accounts pass to heirs without them being obligated to pay inheritance taxes. (Estate taxes are a different discussion.) Better yet, the heirs inherit with the cost basis at the owner’s time of death. (Not the cost basis of their original purchase.) That avoids a tremendous amount of capital-gains taxes when the asset is sold. If it was inherited from a joint title or a joint account, though, it might not receive that step-up in cost basis.
State Medicaid agencies are familiar with giving someone joint access to an account. If the account is drained within five years prior to the Medicaid claim then Medicaid could refuse to pay until the joint owner of the account can prove that all of the expenses were for the benefit of the person who granted the joint access.
The lawyer’s version of the right way to care for the finances of an Alzheimer’s patient would be through DPOAs and RLTs. For estate planning, there’s transfer on death/payable on death for financial accounts, and (in some states) even transfer on death deeds for real estate.
Here’s the estate plan that my spouse and I just put into effect a few months ago. It rests on our daughter (our heir), with our son-in-law as backup. We’ll reassess our plan every five years or so:
And yeah, you really have to trust your co-trustee and DPOA holder. But lawyers can also draft the documents to include gatekeepers to oversee the process.
Outside of the DPOAs and RLT, we’ve made our daughter a joint owner of our checking accounts. Those accounts receive the deposits from our pensions (and eventually Social Security), and then the money is automatically transferred to investment accounts where our daughter has a DPOA (and a POD/TOD). That way the risk of the joint account is limited to one month’s deposits.
You could also use a “signature authority” on an account instead of being a joint owner, but our credit union didn’t offer that option.
This mess of DPOAs, RLT, and POD/TOD cost us many months of discussion and about $6000 in legal bills. However it also avoids probate expenses which could be much higher.