25 Sep What problems can be caused by a joint bank account?

Q. I added my 79-year-old father as a co-owner of my checking account to speed up a one-time cash transfer he was making to me. Would keeping him on the account be a problem? Doing paperwork at the bank is about as fun as going to motor vehicles. I don’t know what would happen if he fell victim to a scam.
— Unsure

A. There are multiple issues to consider.

It appears that a large portion of the funds in the checking account came from your father.

Because your father remains as a named joint holder of the account, he is entitled to withdraw some or all of the funds in the account at any time, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

“For this reason, the transfer is neither a completed gift nor payment from your father to you until you make a withdrawal,” she said.

Romania said should your father predecease you, the checking account would be included in his taxable estate – notwithstanding that there may not be a tax due – and a New Jersey tax waiver would need to be obtained to release the funds to you.

Should you predecease your father, the checking account funds will automatically pass to your father by operation of law, and not pursuant to the terms of your will, nor to your children or spouse, if any, she said.

Because your father is able to withdraw the funds during his lifetime as a joint holder of the account, as you note, the funds are subject to him being a victim to numerous scams, many of which are sophisticated and convincing.

“To safeguard your funds, it is recommended you take the time to do the paperwork to properly title the checking account,” she said. “Additionally, if the transfer of funds was a gift to you in excess of $15,000, your father should file a Form 709, United States Gift and Generation-Skipping Transfer Tax Return, notwithstanding no tax is likely due because the federal gift and estate tax exemption is currently $11.4 million per person.”

Another thing to consider is Medicaid.

If the transfer was made by your father for purposes of your father qualifying for Medicaid in the future, the Medicaid look back period and penalty could be a concern, Romania said.

“Medicaid has a five-year look back from the time of the application. Any gifts or transfers made within that period are subject to a penalty, which is a period for which Medicaid benefits are denied,” she said. “Since the transfer is not complete until you remove your father’s name from the account, for purposes of Medicaid qualification it would be best to remove your father as soon as possible from the account.”

And don’t forget that a joint account could be subject to legal judgments, collections and other debt collection efforts.

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This story was originally published on Sept. 25, 2019.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.