What Is Wrong With The Banks?

This past week I met with a woman for whom we had done some estate planning in 2008.  At that time her husband was in failing health but was still living at home.  We prepared wills, powers of attorneys and health care documents for each spouse, and educated them on long-term care planning and asset preservation issues. 

In 2010 Mr. Simpson's condition deteriorated to the point that he needed to move into nursing home. Since the Simpson's already met the Medicaid eligibility criteria, Mrs. Simpson was able to file the Medicaid application on her own, and the application was approved. 

Sometime after Mrs. Simpson completed the Medicaid process she stopped into her bank.  Because she was now "on her own,"  the "helpful" person at the bank suggested that Mrs. Simpson add her daughter "Sally's" name to Mrs. Simpson's bank account just in case Mrs. Simpson needed help with her financial affairs.  However, in 2008 Mrs. Simpson had executed a comprehensive financial Power of Attorney that provided another of Mrs. Simpson's children with all the authority needed to assist Mrs. Simpson with her financial affairs.

Why, you might ask, does it matter whether a child is put on the account as a joint owner, or instead only has legal authority to act under a Power of Attorney?  Well, when a child's name is added to a parent's bank account, they immediately acquire an ownership interest in the account assets, including the right to immediately withdraw all the funds in the account.  Just as important, even if the child has no intention of withdrawing the account assets, if the child has judgments against them, the child's creditors can effectively gain control of the assets by "freezing" the jointly owned bank accounts. 

And, that's exactly what happened in Mrs. Simpson's case.  Sally happened to have run up significant credit card debt, and one of her creditor's had obtained judgments against her for non-payment.  As soon as Sally's name was added to her mother's account, Sally's creditor's pounced and were able to have Mrs. Simpson's account frozen.  Only after much effort and aggravation was Mrs. Simpson able to convince Sally's creditor that Sally was on Mrs. Simpson's account for "convenience" purposes only and have the account unfrozen.

I wish I could say that this was an isolated incident, but it happens all too frequently.  It seems that many bank employees have no concept regarding the interplay between creditor's rights and title of ownership, nor do they seem to understand that a durable Power of Attorney provides the named agent with all the legal authority needed to administer a principal's affairs without exposing the principal to the agent's creditors.    

In establishing these joint-tenancy accounts, bank employees are essentially practicing law without a license -- and doing poorly at it.