Financial Planning: Joint Accounts Mean Joint Pain
Barry E. Haimo, Esq.
May 7, 2015
In the right circumstances, a joint bank account can be a useful tool for transferring money and avoiding probate. But while setting up a joint bank account with a family member, loved one, or business associate may seem convenient, there are serious ramifications when joint accounts are handled improperly. In other words, joint accounts could mean joint pain, and we’re not talking about arthritis.
When a joint account is created, the money within the account belongs to all people listed on the account equally. All individuals listed on the account are able to withdraw money and write checks, and are responsible for overdraft charges, no matter who causes them. Account owners can spend, gift and transfer funds into other accounts without the knowledge or consent of other account holders, and even close the account without the other holders’ consent. With joint bank accounts, there is little protection for either holder, and there is little a bank can do to prevent a holder from misusing the account.
If you are considering setting up a joint bank account, it’s important to take the proper precautions and do so with someone you trust. This is particularly important for parents who are considering opening a joint account with their children, as it can invite big problems.
To help you understand some of the risks of opening a joint account with your teen or college-aged child, let’s take a look at the Denatale family’s situation.
A Father’s Good Intentions Gone Wrong
Doug Denatale was worried about his daughter, Holly. The willful college-bound teenager had always been a responsible student and good kid, but she had never lived away from home, held her own job, or had her own bank account before! But soon, Holly would leave their hometown in Coconut Creek, Florida, and go to college in Seattle.
As his only daughter and closest companion after his wife died, Holly was Doug’s treasure—he loved and trusted her more than anyone else in the entire world! That’s why he decided to open a joint bank account in both their names before she left for college. With a joint account, he could ensure his daughter could pay for school books, food, and other expenses, and would be able to easily transfer funds in the case of an emergency. By setting up a joint bank account, he figured he would also be able to provide his young daughter with a simple and safe introduction to the formal banking system. He could monitor Holly’s spending, ensuring he’d be able to keep an eye on her activities if he needed to, and be in a position to advise her if he saw she was spending money unwisely.
On the evening before Holly left for college, Doug took her out to her favorite Indian restaurant to celebrate and say their goodbyes. Over garlic naan and chicken tikka masala, Doug told Holly that he’d opened a joint bank account in both their names.
“It’s for school books, food, clothes, and treats once and a while,” Doug told her. “I want you to be happy, safe, and comfortable, and I know you’ll use the money responsibly!”
Holly thanked him, and assured him that she would.
In the months that followed, Doug was pleased—though not surprised—to see that Holly was true to her word. Whenever he reviewed the list of transactions on the bank account, he found that Holly was making minimal withdrawals, and using the debit card for purchases such as textbooks and groceries.
However, shortly before Halloween, Doug began to notice an increase in Holly’s spending. He noticed she was going out to restaurants more, and spending much more at the grocery store. At first he thought nothing of it—she was probably just making friends and enjoying her newfound freedom. Doug didn’t want her to think he didn’t want her to enjoy herself, though he made a mental note he’d talk to her about the importance of responsible spending the next time she visited.
But gradually, Holly’s spending began to grow out of hand. When Doug reviewed the credit card statement at the end of November, he was shocked to find that she’d not only spent hundreds of dollars on groceries and restaurant bills, she’d made expensive purchases at a fancy men’s clothing shop.
Something was going on, Doug decided. He called Holly, who answered the phone in tears. When he asked her about her excessive and inexplicable men’s clothing purchases, Holly admitted that she’d been dating an older man she’d met at a frat party. JD was an actor who had seemed really cool and interesting at first. But eventually, JD began to pressure her into using her father’s card to go out to expensive restaurants, and to buy alcohol for him and his friends. JD had even asked her to buy him some expensive clothing for an upcoming audition he had in LA, promising to return the items after. But JD had called her from LA and broken up with her, and she hadn’t heard from him since.
Doug realized he’d been unknowingly supporting the lush tastes of some actor he didn’t even know. He was upset, but told his crying daughter it was all right, realizing they’d both learned an important lesson—don’t let your heart influence major financial decisions.
There are certain circumstances when setting up a joint bank account is a practical idea, but your teenage child going away to college may not be one of them. In upcoming posts, we’ll look at some situations where opening a joint bank account might make sense. And if you are wondering whether setting up a joint bank account might be the right choice for you and your family, consult with an experienced Florida estate planning attorney.
Barry E. Haimo, Esq.
Strategic Planning With Purpose
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