Most people possess one or more bank accounts. Normally, we can handle our finances without assistance. However, there are times in our lives when age, illness, or other circumstances prevent us from managing our financial affairs. Generally, this affects us most when we lack the physical capacity to pay for goods or services. Commonly, people will try to resolve this issue by adding a family member or close friend to their bank accounts. This process is completed at a financial institution by signing a few forms and generally takes less than an hour. The intent is for the added individual to pay for goods or services when we cannot. In reality, what we have created is a co-owner of our bank account that gives the new owner certain rights that do not always fit the intent and desires of the original owner. This is because adding the new owner makes the account Joint Property.
In Michigan, property can be held in many different ways. Bank accounts with more than one owner are categorized as Joint Property. We call these Joint Bank Accounts. Joint Bank Accounts have two main attributes that should be of concern to anyone thinking about converting an account from a single owner to multiple owners. First, all owners of a Joint Bank Account have unrestricted access to the funds in the account. The bank views anyone on the account as having an ability to deposit or withdraw from the account. Second, Joint Bank Accounts carry a Right of Survivorship. This means that when one owner dies, the surviving owner automatically gets the deceased owners share of the property. It does not matter if the deceased person has a will or not. These attributes can be great benefits but they also create problems if everything does not go as planned.
In a joint account, all owners of the account have access to funds in the account regardless of who put the a funds into the account. This creates the risk that the added account owner could withdraw part, some, or all of the funds in the account without the original owners permission and, often, leaving the original owner without a way to pay for goods or services. Although there are court decisions that allow for recovery of funds removed from a Joint Bank Account without the permission of the depositor, there is no recourse outside of a lawsuit. This leaves the original owner without any money and added legal expenses. Additionally, winning a lawsuit does not ensure recovery of the funds because the owner who took the funds often does not have any money or assets to repay the account.
The second risk occurs upon the death of the original account owner. When the original account owner dies the account passes on death to the remaining owners outright. A person’s will has no bearing on this because a will only applies to probate assets. The Joint Bank Account is not a probate asset. Often we see this as a concern when a parent adds a specific child or family friend to the account to assist with the parent’s financial affairs. Generally, the parent desires for the individual having access to the account to split the proceeds of the account with all the children on the parents death. What often happens is the parent dies and the surviving account owner takes all of the account assets without giving any portion to the other surviving children. A lawsuit may be filed in an attempt to correct this but they are often unsuccessful because the remaining owner has no duty to give the remaining funds to the other children. This is based on the right of survivorship provided to Joint Bank Accounts. Further, family discord generally ensues.
The act of adding a friend or family member to a bank account to assist with managing finances might be an easy option but the risks are substantial and the damage is nearly irreversible. There are options for accomplishing the same goals with little risk and better recourse if someone does take advantage of the situation. The Maul Law Group’s Probate and Estate Planning professionals are well equipped to create solutions to address these matters. Let our firm assist you with finding a solution that best meets your needs.