Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones. But while joint accounts can be useful in certain circumstances, they can have dire consequences if not used properly.

Once money is deposited in a joint account, it belongs to both account holders equally, regardless of who deposited the money. Account holders can withdraw, spend, or transfer money in the account without the consent of the other person on the account.

Before putting anyone on a joint account with you, you need to be sure you can trust that person because they will have full access to the account. When one account holder dies, the money in the account automatically goes to the other account holder without passing through probate.

One problem with joint accounts is that it makes the account vulnerable to all the account owner’s creditors. For example, suppose you add your daughter or son to your bank account. If either falls behind on credit card debt and gets sued, the credit card company can use the money in the joint account to pay off this debt. Or if either gets divorced, the money in the account could be considered joint assets and be divided up in the divorce.

While a joint account may have two names on it, most states assume the applicant owns the entire amount in the account regardless of who contributed money to the account.

There is a better way for a loved one to have access to your accounts if necessary, and that is through a Power of Attorney. This will ensure family members have access to your finances in the case of your disability.  If you are seeking to transfer assets and avoid probate, a trust makes better sense.

Be Educated! Be Proactive!