I often meet with clients who want their adult children to be able to access their accounts to help out with writing checks or paying bills on their behalf. However, this good intention can create a very serious risk of liability if carried out incorrectly.
Often, a parent goes to the bank and asks the teller to add the child onto the account. In doing so, the adult child is now a co-owner of this account. This action may create problems for the parent. For example, if the child has creditors, later files for divorce, has a failed business or files for bankruptcy, then the jointly owned asset may be vulnerable to claims. This could force the parent to lose some or all of that account to pay the child’s debt.
Instead of adding the child as a co-owner on bank accounts, your child could use a properly drafted Durable Power of Attorney (DPOA) to help you deal with your finances should the circumstance arise. A Durable Power of Attorney is a legal document in which you designate who you want to make legal and financial decisions for you if you cannot make them for yourself. I recommend an extremely comprehensive DPOA that allows your agent to handle virtually all legal and financial matters for you. I also usually recommend a DPOA that goes into effect the moment it is signed (rather than one that “springs” into effect upon the principal’s incapacity–called a “springing power”). This means your agent can use it even if you are not disabled. This is often necessary for the DPOA to be accepted at many financial institutions. Therefore, it is very important that you pick only people whom you trust to be your agent on your Durable Power of Attorney. Every Durable Power of Attorney should have a primary agent and an alternate agent who would act only if the primary agent is unable to act for you.
Designating the adult child as a Power of Attorney allows the child to access the account, write checks, pay bills and do everything the parent needs without connecting them personally to the account or exposing assets to the child’s creditors, predators, or divorcing spouses.
According to a new study in the New England Journal of Medicine, one in four elderly Americans require someone else to make decisions about their medical care at the end of their lives.
Here’s the good news: the study found that planning improved the likelihood that a patient’s wishes would be followed and reduced emotional trauma among family members. “The results illustrate the value of people making their wishes known in a living will and designating someone to make treatment decisions for them, the researchers said,” The Associated Press reports. “In the study, those who spelled out their preferences in living wills usually got the treatment they wanted. Only a few wanted heroic measures to prolong their lives. The researchers said it’s the first accounting of how many of the elderly really end up needing medical decisions made for them.”
I have long advocated that every adult should have a durable power of attorney for healthcare decisions as an integral part of a comprehensive estate plan.
Now for the bad/surprising news: according to a recent article in the Washington Post, five years after the court fight over allowing Terri Schiavo to die, most Americans still don’t draft the legal documents that spell out how far caregivers should go to keep them alive artificially. End-of-life experts estimate only 20 percent to 30 percent of U.S. adults have advance directives, the same as before the Schiavo case. Even in polls of older Americans, who fill out such forms at higher rates, there is little if any change from 2005.
Have you taken the time to clarify your end-of-life wishes, what you want out of your final years, how you want to be cared for, where you want to live and so on? You should have this important conversation with your loved ones, and you should memorialize your wishes in the appropriate legal instrument drafted by a trained attorney.
When your parents die, you are the one who will be responsible for taking care of everything they leave behind. My dad died when I was in law school and even though my mom was still living, ensuring that his estate was administered properly was my responsibility. There are steps you can take today to make sure that it will be as easy for you as possible and that what you inherit will be as protected as possible. Avoid these three mistakes.
Mistake #1 – The Way Your Parents’ Assets are Titled Could Cost You Tens or even Hundreds of Thousands of Dollars. If your parents’ own their home and other assets in their own name and not in the name of a well-drafted living trust, you could have to deal with an expensive, time-consuming and frustrating court process called probate. Probate is totally and completely avoidable by ensuring that all of your parents’ assets are held in trust properly.
Mistake #2 – Failure to Have Powers of Attorney and Health Care Directives Could Leave Your Hands Tied. If one or both of your parents become incapacitated, you could be stuck without a way to access their bank accounts and critical information if they have not executed updated legal documents that not only protect them, but you as well.
Mistake #3 – Your Parents’ Living Trust Might Leave Your Inheritance at Risk. If your parents’ trust is drafted in the best way possible, you could receive your inheritance protected completely from lawsuits, divorce and estate taxes. But, if it’s drafted incorrectly, your inheritance could be at risk.
You can easily avoid all of these mistakes today by having your parents’ estate reviewed by a specialist who can take the necessary steps to prepare everything for a smooth administration. Invest a fraction of the time and energy today to avoid 10x the complication, stress and cost later. It’s one of the best and least expensive investments you can make for your peace of mind.
One question I’m asked over and over again is “What Kind of Legal Documents Does Everyone Need?” This is a question I both love and hate. And, I thought I’d answer it once and for all here.
Historically, estate planning has been all about the creation of form documents such as Wills, Trusts, Health Care Directives and Powers of Attorney. While it remains important to have well-crafted documents, what has become clear over the past 10-15 years of lawyers promoting living trusts is that, for the most part, these documents are destined to fail at the time your family needs them the most.
Why is this? Because your life changes, your assets change and the law changes. And, a set of documents that you create once, stick on a shelf or in a drawer and never look at again is not what your family needs in a crisis situation.
What they need is someone to turn to, someone trusted to call upon who will guide them through the crisis situation and out the other side.
So, yes, every adult needs an Advance Health Care Directive (aka Living Will) and a Durable Power of Attorney. If you have money or other assets, you also should have a Will and a Living Trust. If you have kids, you should designate both long-term and temporary (emergency responder) guardians. There’s no excuse not to do this.
But more so than any of that, you really should have a relationship with a personal lawyer you can turn to throughout your life to make sure you always have exactly what your family needs and so that your family will have someone to turn to when they need it most.