As one gets older and less able – or even willing – to deal with financial responsibilities, it is common to turn to others to help take care of your finances. The most comprehensive tool to use in such a case would be a financial durable power of attorney, in which you, as principal, name someone as your agent to handle financial and legal affairs on your behalf. Another commonly used method is naming an adult child as a co-owner or a co-signer on a bank account. A co-owner has full access to the account and will legally own the proceeds of the account after the other account owner’s death. A co-signer simply has authority to write checks and draw on the account.
Adding someone to an account as co-owner or co-signer is a much simpler method of allowing someone to take charge of a specific account and its checkbook. While this can certainly be effective in giving access to your money, use caution in choosing between those two options.
First and foremost, in either case you want to make sure you name someone you trust. As a co-signer or co-owner, the person designated will have full access to your account and therefore must be relied upon to act in your best interests. Too many times there are unfortunate cases reported where money is improperly taken from the original account owner, sometimes leaving them with nothing but an empty account.
Second, some clients will try to avoid probate simply by naming a child or other person as a co-owner on the account (designating a co-signer does not have the same probate avoidance effect). The main point to consider in this scenario, however, as mentioned above, is that when the client dies, the remaining account balance will pass to the co-owner, as his or her property. When putting an estate plan together, some clients want all of their assets to pass equally to their children after their deaths. But the child named as co-owner will inherit that entire account, with no legal obligation to share it with siblings or anybody else. So give careful thought as to whether that’s the result you want, or if you trust that child to “split” the account with siblings after the fact. Even if the child respects your wishes and gives the money to his or her siblings, that child could have negative gift tax consequences as a result.
While naming an account co-owner or co-signer can be useful for getting someone to help with your finances, using a power of attorney is still preferable, because it will give your agent access to your financial accounts plus the authority to handle all of your other legal and financial affairs, if necessary. Further, an agent is acting on your behalf and therefore generally has a fiduciary duty to act in your interest, while a co-owner or co-signer does not.