For some of us, our parents have told us that we have a power of attorney for our parents that become effective if they become incapacitated or die. Indeed, a POA is a needed estate planning document for everyone, especially as it relates to medical decisions and care, should one become incapacitated. However, recently, some have wondered if they can save some estate planning costs by utilizing joint ownership on their accounts.
POA VERSUS JOINT OWNERSHIP
Before understanding whether one can or should use joint ownership instead of a POA, we must understand each. First, in essence, a POA gives someone else the power to act on one’s behalf of another in the future, usually, after some triggering event, like incapacity or death. On the other hand, joint ownership is just that, ownership.
UPSIDE OF JOINT OWNERSHIP
On just about all accounts and assets, one can name a joint owner. This includes bank accounts, brokerage accounts, real estate, businesses, etc. This can generally be done will relatively little effort and cost, and the transfer to the co-owner upon death is automatic as they already own the account. This means no probate and full access.
DOWNSIDES TO JOINT OWNERSHIP
Unlike a POA, joint ownership gives the designated person an ownership interest in the drafter’s assets, and that person does not have a fiduciary duty to act in the best interests of the person that appointed them. Instead, the joint owner can utilize those accounts in whatever when they choose, whenever they want and without the co-owner’s consent. This could have, potentially, catastrophic consequences, should the co-owner choose to liquidate those accounts.
SO, CAN ONE USE JOINT OWNERSHIP INSTEAD OF A POA?
In a word, yes. But, as our Mobile, Alabama, readers can likely tell, it usually is not a smart option. For spouses, it can be an easy way to ensure that they receive of what is already theirs, should one pass. But, for everyone else, a POA is likely the better option. After all, if one wants that person to receive some asset, they can direct them as such in a will.