Joint Property? Watch Out! Avoid Problems with Durable Power of Attorney
John DeStefano and his wife learned the hard way that adding their daughter’s named to their bank accounts was not a good thing. Their $77,362 in savings was wiped out when their Pennsylvania bank used the funds to cover loans taken out by their daughter, Cindy, and her then husband. John and his wife had not co-signed any of the loans nor had they any interest in the daughter’s corporation. All they had done was to add Cindy’s name to their accounts so she could pay their bills in case they became incompetent. However, once her name was on the accounts, even if she had not contributed one penny to those accounts, she had full legal access to withdraw all the money. Thus, the bank was within its rights to go against the parents’ bank accounts to repay the loans it had made to their daughter.
Could this happen in Colorado? Absolutely. The Colorado statute dealing with joint bank deposits specifically provides that “the bank has the right of setoff against such deposit, to the extent thereof, to collect a debt owed to the bank by any joint depositor, which right shall not be affected by death.” (CRS § 11-105-105)
But what if the daughter had not borrowed money from the bank but was in a car accident? Could the judgment creditor attach the joint bank account, even if all the money had been contributed by the parents? While the answer varies from state to state, in Colorado an account belongs to the parties “in proportion to the net contribution of each to the sums on deposit, unless there is clear and convincing evidence of a different intent.” In other words, the judgment creditor would most likely attempt to attach the entire amount of funds in the joint bank account, forcing the parents to hire a lawyer, at their own expense, to argue that all of the money is owned by the parents, no gift was made to the daughter upon creation of the account, and under the statute the creditor may not attach the funds in the bank account. Thus, the parents get to keep their money, but at considerable expense and trouble.
Now consider an additional problem of joint accounts: Sam has two children, Bobby and Sean. Bobby lives locally, while Sean has moved to Ireland to study poetry. For convenience sake, Sam adds Bobby’s name to all his bank accounts, once again to permit Bobby to write checks, pay bills, etc., should Sam get to the point where he can no longer do these tasks. Although Sam’s will leaves everything to his two children in equal shares, upon Sam’s death it is Bobby-as the surviving joint owner of the bank accounts-who winds up with all of Sam’s cash, leaving poor Sean out in the cold.
So what should a parent do, if the parent wishes to give access to bank accounts to one or more children? All of the above problems could have been avoided simply by having the parent sign a Durable Power of Attorney. This is a document that authorizes someone else to carry out specific tasks on your behalf, even if you become incapacitated. The broadest version of this is a “general” durable power of attorney; it includes the power to buy, sell, borrow, sign checks, access bank accounts, sign tax returns, bring law suits on your behalf, etc. In short, to do all things you could have done were you able to do so.
Who should be named as “agent” under your power of attorney? Should you name more than one person to serve at a time? Should it be “standing” or “springing”? What specific provisions should be in it? All of these topics will be discussed in an upcoming article.