Power of Attorney and Joint Ownership: A Primer

At the Center for Elder Law and Justice, we commonly see clients who have both a Power of Attorney and bank accounts held jointly.  Sometimes these individuals (the Power of Attorney agent and Joint owner) are the same, other times they are different.  This blog will explain the differences between the two, the overlap, and the consequences of joint ownership.

There are many reasons someone would think about adding a joint owner to a bank account; for example, when individuals are married, spouses often have joint bank accounts.  Sometimes older individuals add children for assistance with bill pay and to try to avoid probate.  However, it is important to be aware of the consequences of adding a joint owner to your bank account; often, people do not realize how much authority they are giving the other person when adding a joint owner.

Joint Owners

When you name a joint owner on your bank account, it is no longer just your account, regardless of your intent for adding the other owner.  Financial institutions view the joint owners as equal owners of the account, and subsequently, each owner is entitled to 100% of the funds in the account, regardless of who is making the deposits, and regardless of how long the new joint owner has been listed on the account. The joint owner that was added second usually has all the rights and authorities that the original account holder has. When one joint owner passes away, the funds in the account do not go through the probate process; they belong 100% to the surviving joint owner(s).

Example:  John has had an individual bank account for thirty years, and all of his income goes into that account. John’s daughter Jane suggests that he add her as a joint owner, so that she is able to pay his bills while he goes to the hospital for a medical procedure. Some time later, John finds out that Jane has drained the account. Legally Jane is able to do this, even though she was only added as a joint owner recently, and it was only John’s income going into the account; the funds are legally considered to be just as much hers as they are John’s.

Beneficiaries/“Payable on Death” 

If you are considering adding a joint owner to your account in an effort to avoid probate, you should think about adding a beneficiary to the account instead. When you name a beneficiary on your bank account, that person will inherit the balance of your account when you pass away; however, they are not able to access your funds while you are alive. You can always update or change your beneficiary designations without their knowledge, and you don’t need your beneficiary’s permission to make any changes. You can usually name one or more primary beneficiaries and one or more contingent beneficiaries, much like you can on a life insurance policy.  Note that the beneficiary only inherit the balance if there is no joint owner on the account; if there is a joint owner, they will control the account at the death of the other joint holder.

Different financial institutions use different terminology (payable on death, transfer on death, beneficiary), but they generally mean the same thing; contact your bank for more detailed information on your options.

Example:  Mary has a bank account. She adds her son Sam as a joint owner. She adds her daughter Louise as a beneficiary on the account. She creates a Will and leaves all of her assets, including the money in the bank account, to her grandson Fergus.

In this example, when Mary passes away, Sam receives all of the funds in the bank account; it doesn’t matter that there is a beneficiary on the account, and it doesn’t matter what Mary’s Will says. Joint ownership trumps the other designations.

If there was no joint owner, Louise would receive all of the funds in the bank account, because the beneficiary designation supersedes the Will.

 Power of Attorney

A Power of Attorney (POA) is a legal document wherein the principal, or the person making the document, appoints an agent, also known as their POA, and the agent is allowed to make financial decisions and transact business on the principal’s behalf. When you appoint someone as your POA, they have a fiduciary duty to you, and are legally obligated to act at your explicit direction or in your best interest. While the POA is able to access and use the principal’s funds, they are always considered as belonging to the principal. The principal can request an accounting from their agent at any time.

Learn more about POAs here: https://www.elderjusticeny.org/blog/planning-for-the-unexpected-which-documents-are-right-for-you?rq=power%20of%20attorney).

If you have a valid Power of Attorney document, you can add your agent to your account specifically in their capacity as your POA. This means that they are able to make deposits and withdrawals, write checks, and make financial decisions on your behalf; but they are still obligated to act in your best interest and are held accountable for the financial decisions they make on your behalf. When the account owner/principal passes away, the POA is no longer valid, and therefore, (as long as there is no named joint owner), the funds in the account go either to the named beneficiaries or to the account holder’s estate.

At CELJ we often see cases where someone is Power of Attorney, and later they are added as a joint owner to “help pay bills.”  If you completed a Power of Attorney with the goal of helping manage your finances, you do not also need to add that individual as a joint owner.  In fact, the POA document cautions against comingling assets, specifically cautioning the agent to keep their assets separate and distinct from assets controlled by the principal and to avoid conflicts of interest.  The problem is that when someone is a joint account owner, they are legally entitled to withdraw funds as an owner.  Therefore, while if someone acted as Power of Attorney they have a fiduciary duty, if an individual is acting as a joint account owner it is more challenging to recoup any funds which have been withdrawn.

Before you add anyone to an account, make sure you understand the consequences.  If you have questions don’t hesitate to contact CELJ at 716-853-3087.