For purposes of the probate court, there are two different types of property. The first is “non-probate” property, which includes assets like life insurance policies, 401(k) plans, joint deeds of trust, and other assets with named beneficiaries or automatic survivorship rights. The unique feature about this non-probate property is that it passes to a beneficiary outside the court system when the owner of the asset passes away. All other property is considered “probate” property. Probate property must pass through the probate court upon death of the owner. It is important to understand that property as simple as a checking account can end up as either type of property, depending on the structure of the account.
Advantages And Disadvantages Of A Joint Checking Account
The main advantage of a joint checking account is that at the death of one of the owners, the account passes automatically to the surviving owner, and thus avoiding probate. A joint checking account can be opened with anyone as co-owners, including, but not limited to: spouses, parents, children, or business partners. It is important to understand that no matter who started the account or who deposited the money, both owners have the right to spend, give away, or transfer funds without the knowledge or consent of the other account holder. However, a joint account could possibly subject your assets to claims of the other party’s creditors and in some cases, trigger higher taxes.
A Payable On Death (POD) Account
A POD checking account is actually a type of informal revocable trust in which an individual account owner signs an agreement authorizing the bank to transfer the funds in the account to a named beneficiary upon the account owner’s death. The owner retains all control of deposits and also the right to change beneficiaries during his or her lifetime. Because this account has a named beneficiary, it is considered non-probate property.
Checking Account With Power Of Attorney
A checking account with power of attorney can be convenient for those who are ill, or for elderly depositors who rely on others to help manage their finances. The depositor authorizes an “agent” to write checks or make withdrawals from the account. This authority is limited to the particular bank account. It is not a durable power of attorney to handle any other financial matters. This power of attorney terminates on the account owner’s death and account deposits do not automatically pass to anyone on the owner’s death. Because there is no designated beneficiary, this type of account must pass through the probate court upon the account holder’s death.
If you are concerned about the finances of an elderly parent or other loved one, a durable power of attorney can be a more flexible legal instrument than any joint bank account. If you are considering opening a joint account with one of your children, remember that, at your death, the account proceeds will pass to the child as joint-owner, and the others will normally get nothing. Changing bank accounts and retitling some of your assets can have a drastic impact on your estate plan.
Bill Hesch is a CPA, PFS (Personal Financial Specialist), and an attorney licensed in Ohio and Kentucky who helps clients with their financial planning. He also practices elder law planning, estate planning, and Medicaid planning in the Greater Cincinnati and Northern Kentucky areas. His practice area includes Hamilton County, Butler County, Warren County, and Clermont County in Ohio, and Campbell County, Kenton County, and Boone County in Kentucky. Please contact him to establish a plan for you or a loved one to determine how assets should be titled.