Update: The implementation date for the "look back" has been extended from July 1, 2021…
Many seniors currently need assistance paying their bills and managing their finances, or may need help sometime in the future. It’s important tohave a trustworthy person authorized to manage your finances should you be unable to do so yourself.
For many seniors, adding a child or other loved one as co-owner on bank and brokerage accounts can be an easy and convenient way of managing those assets and making sure bills are paid on time. However, many seniors do not take into account the possible risks and potential consequences of joint ownership, and the other available alternatives that may be more in line with their objectives.
First, be aware that a joint owner will have complete access to your bank account and has the right to make an unlimited amount of withdrawals, even if it is your money in the account. A joint owner can write checks and withdraw money without your permission. This is why it is imperative to name an individual who you trust will act in your best interest.
Second, once your co-owner’s name is on the account, your money will be vulnerable to his or her creditors. For instance, if your co-owner goes through a divorce, has a business failure, or gets sued, your money will be exposed to those claims.
Third, when you die, the assets in a jointly-owned account will automatically become the property of the surviving owner. A joint owner generally has a right of survivorship,’ so the assets will pass directly to him or her at your death. This can be a desirable and convenient way of passing assets at death, as long as it is in line with your wishes. However, the results can be disastrous if your intention is for the money to pass to someone else, or to be divided among several beneficiaries according to the terms of your will.
Additionally, as Elder Law attorneys, we are always concerned with possible Medicaid implications. Many people erroneously believe that Medicaid will view a joint account as being owned half by the Medicaid applicant and half by the other owner. However, Medicaid presumes that the entire account belongs to the Medicaid applicant, and the burden is on the applicant to prove otherwise. Therefore, joint ownership does not protect any portion of an account from Medicaid’s rules unless it can be proven that money in the joint account belongs to someone other than the Medicaid applicant.
A joint account may be appropriate in certain situations, however, there are several alternatives to joint accounts that can protect you and your assets in different ways.
One simple alternative is to sign a durable power of attorney, and file it with the financial institutions where your accounts are held. Your agent under your power of attorney would be able to manage your finances on your behalf, including making withdrawals and writing checks without your permission, but the assets would be owned by you alone. Your agent would have a legal duty to manage your finances on your behalf and in your best interest.
Also, if you are the sole owner on the account and have a power of attorney, you should designate beneficiaries to avoid lengthy and costly probate proceedings. By using in trust for (also known as ITF), pay on death (also known as POD) or for the benefit of (also known as FBO) designations on your accounts, your money will pass directly to the beneficiaries that you have listed after you pass away, but they will have no ownership interest during your lifetime.
Although they are beneficial for assistance with managing your assets while you are alive and distributing your assets after death, neither a power of attorney nor an ITF designation will protect your money should you need to apply for Medicaid benefits. In almost all situations, the best and most protective vehicle for safeguarding your assets is going to be a trust. A trust is a legal entity that is created in order to assume ownership of your assets and property, and hold them for your benefit during your life and for your beneficiaries after your death. A Trustee is named to manage the funds in the trust according to the terms of the document.
Once your assets are transferred to the trust neither you nor the Trustee is the owner of the funds, thereby allowing you to become financially eligible for Medicaid benefits. Additionally, the trust protects your money from your – and your Trustee’s – creditors (including Medicaid). At your death, the trust assets pass to the beneficiaries you designate within the trust agreement itself. There are several types of trusts available to protect assets and property from potential creditors, avoid probate, and keep your assets safe and available for you even if you need to apply for Medicaid services.
As you can see, there are many ways to title your assets in order to place yourself in the best possible position according to your particular needs and comfort level. It’s important that you speak to an Elder Law attorney about planning for a time when you may be incapable of managing your own affairs and placing you in the most advantageous position possible should you need to apply for Medicaid. Elder Law attorneys will work closely with you to devise a plan that works for you and in which your priorities are tantamount. If you would like advice about your specific situation, call us today at (212) 447-8690.