By Linda Toga, Esq.
THE FACTS: My sister, Joan, suffers from mental health issues that sometimes make it difficult for her to handle her own affairs. In order to guarantee that her bills were paid on time, my sister added my brother, Joe, as a joint owner on her bank account.
A few years ago Joe guaranteed a loan that was taken out by a friend of the family. Last year the friend defaulted on the loan and the lender was able to get a judgment against Joe. The lender has attached a restraining notice to Joan’s account and is trying to get the money from Joan’s account to cover the judgment against Joe.
THE QUESTION: What, if anything, can Joan do to make sure her money is not used to satisfy Joe’s judgment?
THE ANSWER: In order to overcome the presumption that the money in the joint account is available to cover Joe’s judgment, Joan and Joe will have to prove that Joe’s name was added to the account by Joan as a convenience, not with the intent to gift the money in the account to Joe, and that all of the funds in the account are, in fact, Joan’s and that Joe has not used the account to pay his own expenses.
If those facts can be established, there’s a good chance the judgment creditor will not be able to satisfy the judgment with Joan’s funds. This is especially true if it can be demonstrated that Joe has an account in his own name from which he pays his bills. Assuming that is the case, the creditor can attach a restraining notice on Joe’s account.
Like Joan, many people believe that simply adding someone to their account is the best way to be sure that their bills will be paid in the event they are unable to pay them on their own. Unfortunately, people do not understand the potential problems and the unintended consequences that often result from doing that. Not only are funds in joint accounts legally viewed as belonging to both joint account holders but, upon the death of one account holder, the funds will pass by operation of law to the survivor.
Unless it can be shown that the account was opened as a convenience account and not a true joint account, the creditors of the joint owner who has not contributed to the account and/or the surviving joint owner himself, will enjoy a windfall at the expense of the owner whose funds were in the account.
To avoid this outcome and to ensure that bills are paid, I recommend that my clients appoint someone as their agent under a power of attorney. By appointing an agent through a power of attorney, people can delegate authority to their agent to handle countless types of transactions in addition to banking and bill paying. The end result is that the funds in the client’s accounts are not subject to attachment by the agent’s creditors and, upon the client’s death, will pass in accordance with the client’s will.
Linda M. Toga provides legal services in the areas of estate planning/elder law, probate and estate administration, real estate, small business service and litigation from her East Setauket office.
