Immediate expenses

We hear this from clients with some frequency: “I’ve put my son Joe on my accounts because when I die, I know he’ll need money for immediate expenses. I trust him. He’ll divide what’s left among all the kids.”

This isn’t the best idea, but it’s also not always a disaster. There are considerable risks. But if you decide to accept the risk, there are some easy ways to minimize it.

‘On’ Means Joint Ownership

Putting someone “on” an account usually means “Joint with Rights of Survivorship.” For this type of account, when any of the owners dies, the assets will automatically transfer to the surviving owner (or owners). It seems easy and convenient. Unexpected consequences abound:

  1. No Guarantees, Part 1. There’s a good chance your co-owner won’t use the funds for immediate expenses. Because the assets automatically transfer to the surviving owner(s), the survivors don’t have to abide by your wishes. Regardless of your intent, the survivor(s) can refuse to use it how you intended or even take the money out and use it however they want.
  2. No Guarantees, Part 2. Even if some of the funds are used as you intended, what’s left belongs to the co-owner(s). The asset is legally theirs and dies not pass according to your will or trust. Sometimes, co-owners agree to follow the decedent’s wishes. But it’s optional, and often they decide not to. After thinking long and hard, co-owners sometimes conclude, “Mom loved me so much, she really did want me to have that account.”
  3. Tax Issues for You. The IRS may consider a non-spouse co-owner the recipient of a gift. If the co-owner’s share exceeds the annual $15,000.00 minimum, a gift tax return may be due. The amount exceeding the annual minimum counts against your lifetime exemption. That’s probably not a big deal now, when the exemption is $11.7 million, but it could matter in the future. That number is going to come down in 2026, if not before.
  4. Tax Issues for Surviving Owners. If surviving owners follow your wishes and divide up what’s left in the account among those you intended to receive it, there may be tax consequences for them. The transfer would be a gift from the account owner to the other recipients. Again, if  the amount exceeds the annual minimum, a gift tax return would be required. And it would reduce the amount the co-owner is able to give tax-free to other individuals.
  5. Creditor issues. During your lifetime, if a co-owner runs into trouble with creditors, your account could get caught in the middle. If it can be proved that the account assets belongs to you, the creditors can’t seize it. But it can take time, energy, and money to sort out ownership.
  6. Unexpected need. During your lifetime, a co-owner could find themselves in a tough spot and use the funds for their own benefit or even empty the entire account. Again, you can file a lawsuit and prove it’s all your money. But by that time, there may be little to recover. Plus, most people don’t like suing their own family members.
  7. Loss of Control. Once you have added a joint owner, you can’t remove them whenever you want. They have to agree to give up their interest.

Some Better Ideas

A better solution: A Transfer on Death, or “TOD,” designation. This designates the person to receive the account at your death. They have no interest or control during your lifetime. At death, the account transfers upon presentation of death certificate. This still is not a great solution for paying immediate expenses, because 1) there can be a delay in issuing a death certificate, and 2) the co-owner can still pocket the funds and not use the money as you intended.

But it does avoid most of the drawbacks of a joint account. You would want to name an agent under financial power of attorney to manage the funds if you become unable to do so during your lifetime.

An even better solution: Execute a trust and name a co-trustee. The co-trustee’s access to accounts would continue if you become incapacitated and after your death. Plus, as remaining sole trustee, they will be legally required to follow th terms of the trust – your wishes. They would have to manage trust assets for your benefit during your lifetime and for the benefit of your beneficiaries after your death.

Less Risky Ways to Provide for Immediate Expenses

If you still worry about access to funds for immediate expenses and want to “add” someone to your accounts. Or, if you already have added a loved one and don’t want to deal with the potential drama of asking them to give it up, here are some strategies to minimize the risk:

  1. Keep the Balance Low. Carefully consider what expenses might come up and keep only enough to cover them in the joint account. Do the math, and keep the balance appropriate. Even if your co-owner walks away with the money, the damage should be minimal.
  2. Make Other Arrangements. Certain expenses are inevitable. Consider prepaying or buying life insurance for cremation, burial, and funeral arrangements. This has the added bonus of making things easier for loved ones at a time of grief and stress. They both know they are following your wishes, and they don’t have to pay for it!
  3. Share Your Intentions. Put it in writing and spread the word with other heirs and beneficiaries. Although such a document is not likely to be legally enforceable, your surviving co-owner will face family wrath if they fail to follow your wishes. That can be a powerful force.

That said, the need for funds for immediate expenses after someone dies is almost never a serious problem. If your affairs are in order and no disputes arise at the outset, the executor can access accounts within a relatively short period of time. In most cases, an estate administrator can simply tell any creditor: “You have to wait.” And they do.

The post For ‘Immediate Expenses,’ How About a Joint Account? appeared first on Fleming and Curti, PLC.