Today I woke up and went for a run with my iPhone, listening to my favorite songs that help keep my pace. I ate breakfast while paying my bills online. I then drove to my office, making phone calls along the way via the Bluetooth technology in my car so I didn’t have to actually hold or dial my cell phone. Once I arrived at my office, I worked on client files that are all maintained digitally.
None of this was possible only a relatively short time ago. Isn’t that amazing?
So much of our lives are electronic and digital now, we don’t even realize it. Yet this electronic age also creates problems. When one of my clients gets sick and their children need to take over as their durable power of attorney or as trustee of their trust, often it is difficult to access bank and brokerage accounts unless the children know the usernames and passwords to those accounts.
Obviously, if you have named someone in your legal documents under your durable power of attorney or as a trustee to your trust, it would be a good idea to let them know where you have electronic accounts as well as the username and passwords on those accounts. Perhaps they can keep those in a password-protected file on their computer or in some other location where third parties won’t have access.
But it really shouldn’t stop there. Most of us keep only a month or two’s worth of living expenses in our checking account. Our income might be electronically deposited into that account – either in the form of wages, social security benefits, dividends and interest. Sometimes, however, we have larger bills that need to be paid – such as when our real estate tax bill comes due. When those larger bills are due, we might take amounts from our savings or money market accounts to pay those bills.
The person you have named to take care of these things in the event of your incapacity should know which accounts you commonly tap for those larger expenses. They should also know how to easily transfer money between accounts.
Sometimes I see where people will actually name a child or other trusted person as a joint account holder to facilitate these issues. While I believe it may be a good idea to add such a person as a signor on the account, I don’t think it’s wise to name that person as a joint owner on the account for a number of reasons.
First, as a joint owner, you have legally made a gift to that person of half of the account, and continue to make gifts each time you deposit money into the account. Those gifts are limited to the annual exclusion amount, and if you make any more gifts to that person (both outright to them as well as in the joint account) that are above the annual amount in any calendar year you are required to file a gift tax return.
Second, you might thwart your estate plan when making someone else a joint owner on an account. Upon your death, the joint owner would then take the account if it were owned with rights of survivorship. It doesn’t matter if your will or trust says to divide all of your assets equally among all of your beneficiaries, because a joint account wouldn’t be governed by your will or trust.
Third, if the person you have named as a joint owner on the account has any creditor problems, or if they are going through a divorce, your account that you have named them on as a joint owner might be at risk.
Fourth, if you ever want to change the account and remove the joint owner – replacing him or her with someone else, you will require that joint owner’s signature to make the changes.
So as you might see, it’s usually a better tactic to make the person a signor on the account, or better yet – just have the account held in your trust. If that person is your successor trustee then they will be able to access the account in the event of your disability without actually having to be named on the account.
But it would still be a good idea to let that person know how you manage the account electronically. Keep this in mind as well – if you have given someone your usernames and passwords, and if you later don’t want that person to have access to your accounts, you should remember to change the username and passwords to the account.
While our digital age has definitely made life more enjoyable in any number of ways, it has also added complexity. Even recently, the law is catching up with the multitude of digital assets people have. Please make sure that you stay up with the times and that all of those who you will trust to take care of you understand how your accounts are set up and how to access them. It’s also a good idea to consult your estate planning attorney to find out about how the law has kept up to date with technological advances.
© 2018 Craig R. Hersch. Originally published in the Sanibel Island Sun.
