Joint Accounts

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Question: Someone told me to avoid probate, so I have added my two children as joint owners on my bank accounts or put them “in trust for” my children. Does this protect my assets from Medicaid too?

Answer: No, it does not. Adding a joint owner on bank accounts does not protect them for Medicaid purposes and neither does designating them as a beneficiary. “In trust for” accounts are a misnomer. When an account states that it is “in trust for” someone it does not mean that there is a trust created for the benefit of that person. Rather, it simply refers to a designation of who will inherit the asset when the account owner is deceased.

You are correct that adding co-owners or beneficiary designations does avoid probate. Probate is the court process whereby a Will is filed and validated by the Surrogate’s Court. As part of this process, all those individuals who would inherit had you never written a Will are entitled to notice of the probate proceeding and must consent to the admittance of your Will before assets can be distributed. If they do not consent to the probate of the Will, and/or if they file objections, it will cause unnecessary delay and cost to the estate. Accordingly, if you are disinheriting a natural heir, avoiding probate is a priority. However, if you are not disinheriting heirs, probate is generally not a problem. Moreover, while you can name children as beneficiaries on bank accounts, you are not able to do so for real property without re-titling the deed. If you own real property in your sole name at the time of your death, your children would still have to go through probate in order to inherit same.

If you are interested in protecting assets for Medicaid purposes, the best planning tool is an irrevocable trust. The trust must name someone other than yourself or your spouse as the trustee and must be an income-only trust. As an income-only trust, if you put assets into the trust you would only be entitled to the interest or dividends, but in no event could principal be distributed to you. This limitation provides the Medicaid protection. If you transfer real property to your irrevocable trust, you still maintain the right to reside in the property as well as any tax benefits including STAR exemption, capital gains exclusion and income tax deductions. While the trust is irrevocable, it could be revoked provided your beneficiaries agree. While it can seem daunting to give up control with the irrevocable trust, it can be a useful technique to protect assets and become eligible for Medicaid to cover the cost of your long term care in a nursing home facility or at home.

In addition to not protecting assets for Medicaid purposes, designating your children as the beneficiaries on your bank accounts or having joint accounts will not protect the assets from their creditors, both when they inherit or during your life. If you add your child’s name to your bank account, it is as if you gifted half the account to that child. If they have creditors, or get a divorce, your money can be subject to the creditors of your child. Moreover, when the children do inherit from you, if the money goes to them outright, and they have creditors or need Medicaid themselves, it cannot be protected. However, if you transfer the assets to them in a trust, the assets can be protected for years to come.

It is important to note that not all irrevocable trusts are equal. If you are interested in doing Medicaid planning, visit with an experienced Elder Law Attorney in your area.

– Kimberly Trueman, Esq. and Nancy Burner, Esq. 

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Burner Law Group, P.C.

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