Joint Accounts: Good or Bad?

Clients often ask, “Isn’t it a good thing to have my bank accounts jointly owned with my children?” There is no simple answer, because it depends on the circumstances you face.

Often, the question comes about in the context of “Will it let me avoid Probate?” The answer there is yes, but under Connecticut law that does not excuse the filing of an Inheritance Tax Return. There is no tax if you are below $3.5 million, but that does result in a small Probate fee.

A second questions, sometimes asked by a child who is the joint owner, is “Does this account belong to me?” or “Do I have to share it with my brothers and sisters?” The answer here is a very big “maybe”. That is because under Connecticut law, the question is whether the deceased parent intended the account to go to the joint owner, or was set up just for convenience. In other words, was the account set up to make it easy for the child to help handle the parents’ assets, or was it set up with the intention to give that account to that particular child upon the parent’s death. There have been numerous cases on this issue over many decades, and it really goes to the intention of the parent. So the decision to make a joint account should be made by keeping in mind your intentions, and whether or not your children get along. Otherwise, there can be family issues.

A third question is, “Won’t the State count my share of the account as one half if I need to apply for title 19?” The answer here is a definite “NO” for Medicaid. The Medicaid (Title 19) rules are very clear that joint accounts are 100% counted as the parent’s money. Sometimes, however, it really is the child’s money and not the parents. This usually comes about with an unmarried child who put the parent on the account when the child was a relatively young adult, so the parent would inherit automatically if the child died. Then the years go by and suddenly the parent becomes sick and needs Title 19, and has the joint bank account which is really the child’s money. The State does allow the child to prove that this is actually the child’s money, but it takes some effort. Usually it must be shown that only the child’s money was deposited into the account.

The rule on joint accounts is not the same, however, if you are applying for Veterans’ Administration Aid and Attendance benefits. The VA will usually consider the account only half owned by the parent. So it depends on what assistance you are applying for.

Another question is whether or not the account is the parent’s money if the parent dies and the answer is usually YES for Estate tax purposes, but since the Connecticut Succession Tax exemption is $3.5 million, there are very few people who will be affected by this rule.

Since these situations involving joint accounts are very normal and come up time and again, it is prudent to think about the ramifications before you create the account. In most cases, with cooperative children, it won’t make a bit of difference.

The rules for jointly owned stocks or real estate can be very different, and are beyond the scope of this article, and of course the VA rules are different from the Medicaid rules, so it is vital to get good advice if you have joint accounts and are applying for government benefits.