If you are considering
adding a family member to your bank account, it's important to be aware of the
differences between authorized signers and joint owners of a bank account. The two designations have vastly different powers.
Authorized signers.
But the authorized signer has no ownership interests in the account and must act in the best interests of the account owner. The authorized signer only holds signing
privileges while the account owner is alive and those privileges are extinguished once
the owner dies. Creditors of the signer cannot reach assets in the account, as
the signer is not a joint owner.
Joint owners.
In some instances an account owner will add a joint owner, perhaps a child or a close friend, to allow the new joint owner to have access to the funds, and with the intent that the joint owner will someday inherit the remaining account funds upon the death of the original owner. Each joint owner owns and has all rights to the funds in the account, just as joint tenants have full rights of ownership and use of real property.
But it is important to know that since the added joint owner will immediately be granted the same ownership rights as the original owner, he or she should be a person who can be trusted. Furthermore, if creditors have judgment claims against the added joint owner, those creditors could reach the assets in the account.
Since the surviving joint owner has right of survivorship when the other owner dies, the account is a non-probate asset and is not distributed by the Will. Being a non-probate asset, joint ownership of a bank account can create some conflict in your estate plan. Here's an example:
Suppose a testator has a Will designating all three of her children to receive equal shares of the estate. But her bank account is set up in joint ownership with only her oldest child. When the testator dies, all three children will receive a one-third share of the probate estate. However, the oldest child, through right of survivorship, will also receive all of the bank account assets. The other two children will receive nothing from the bank account.
When
setting up either
an authorized signer or joint owner, be sure that there is no mistake as
to
which type of designation is being set up. Banks have forms for both,
and yes, there have been cases where account owners have inadvertently
executed the wrong form. Make sure that you are clear about what you are
granting.
Alternate: POD accounts.
If you want to leave your bank assets to someone after you die, but you don't want them to have a joint ownership interest while you are still alive, you can name the person as a beneficiary of a payable-on-death (POD) account. With a POD account the assets become part of the estate after you die and are conveyed directly to the named beneficiary. Many banks have downloadable forms you can use to designate your account as a POD account and name the beneficiaries.
* * *
Bank accounts are important assets to protect in your estate plan. Before signing off rights to your accounts, talk to a qualified attorney who can help you make the right decisions to preserve those assets for your loved ones.