A Better Bank Account

In a recent post about the sometimes contentious issue of protecting seniors who are losing the ability to manage their finances, I wrote about a daughter who was able to intervene in her mother’s financial exploitation because she was a co-signer on her bank accounts.

That’s typically a first step taken when, or before, family members suspect problems. “The joint bank account is everybody’s default estate-planning tool, because it’s widely known and commonly used,” Charles Sabatino, a lawyer who is director of the American Bar Association’s Commission on Law and Aging, told me in an interview. “But it’s less than ideal.”

Recently, in a commentary appearing in The Journal of the American Medical Association, he proposed a better idea.

Cognitive decline “can be the canary in the coal mine of impending dementia,” Mr. Sabatino wrote. How can worried family members respond effectively? A joint bank account can be useful, he explained, but it also presents some risks for seniors.

First, he said, “you’re trusting the other person not to use the money for their own purposes.” There’s no legal reason the joint owner can’t clean it out and head for Puerto Vallarta.

Further, a co-owner’s debts can create problems. If the daughter I wrote about had defaulted on her own loans, say, and creditors were pursuing her, they could have gone after her mother’s accounts as well — even if the daughter’s debts had nothing to do with the mother.

Joint accounts also create a right of survivorship: the co-owner gets the proceeds after the older person’s death. “If you have four kids and the local one is on the account to help pay bills, that can create real discord among your heirs,” Mr. Sabatino said, particularly if the parent intended for everyone to share equally in the inheritance.

A better alternative, he suggested, is the little-known multiple-party account without right of survivorship, which banks sometimes call a “convenience account.”

“If you intend another person to help you with bill paying and so forth, that person has the authority to access the account, to make deposits and withdrawals,” Mr. Sabatino explained. But this kind of account legally obliges the helper to act as the older person’s agent, serving his or her interest. “They can’t use the money for their own benefit, and creditors of the other party can’t lay claim to it,” he said.

Plus, with no right of survivorship, any money in the account at the older person’s death becomes part of his or her estate, to be divided in accordance with a will or the law. “It’s safer and will avoid conflict among heirs,” Mr. Sabatino said.

Nobody monitors day-to-day usage of such an account, he noted, but establishing one at least makes clear the older party’s intentions. An adult child (or other trusted relative or friend) is helping ensure that a senior’s wishes are carried out and is not to use these funds for any other purpose or to inherit them after death. The helper has acquired a responsibility, not a gift.

Banks don’t necessarily promote these accounts, Mr. Sabatino acknowledged. “If you walk into a bank and say, ‘I want a convenience account,’ the clerk won’t know what you’re talking about.” It may take some explaining or investigating to set one up.

But about half the states have adopted the Uniform Multiple-Person Accounts Act, model legislation for regulating such accounts, and convenience accounts generally exist even in states that haven’t adopted it. It may be worth some dueling with a bank to acquire the greater protection.

Of course, a durable power of attorney remains the gold standard for family members who need the legal authority to help manage a senior’s finances. This legal instrument is more flexible and customizable than any joint bank account. (And the aforementioned daughter had one her mother had signed a year earlier, which proved a substantial help.) Families need to make sure that the aging parent’s bank will accept their power of attorney. That may also require some dueling.

But we know that despite experts’ ceaseless urging, most older adults don’t have such documents, or the equally essential health care proxies. Something about these advance directives seems to spook people — they’re so explicit about disability, incapacity, death itself. Maybe driving over to the local bank branch and putting an adult child on a checking account seems less threatening and therefore more possible.

If so, practice saying “multiple-party account without right of survivorship.” It’s a mouthful, but it makes a difference.