Are joint accounts a good idea when you are creating your estate plan? The answer is yes and no.

Spouses often add each other to accounts to avoid probate and transfer money to their loved one. In addition, older people often add children or trusted friends to accounts for the convenience of paying bills, especially if the older person is starting to have difficulty managing money.

Unfortunately, this process can backfire. For example, a person creates a will, assuming the assets will pass according to the wishes dictated by the will, unfortunately, if the assets are held in joint accounts, the will is meaningless. The title of accounts will control everything when an account holder dies. This is a very common issue and can create unnecessary friction between survivors. This is particularly awkward if a parent has added one child to the account for ease of bill paying. Perhaps that child has also been the caregiver to the parent for many years. However, what if the parent actually intended the account to be split among all the children? There are plenty of lawsuits based on situations like this, especially if the child who was the caregiver believes he or she is entitled to all the assets for all their hard work over the years.

Other disadvantages
• Once the money is deposited in a joint account, all parties have equal access, so any of the can withdraw, spend or transfer money without the consent of the other person. Image what could happen in an unhappy divorce!
• Creditors of any of the parties on a joint account have access to the assets in the account. A creditor may be able to garnish the assets, again without the consent of the other party.
• A joint account can affect a person's eligibility for Medicaid. For instance, an elderly parent may add a child to their account to make the funds easier to transfer upon death. Unfortunately, the entire account is considered countable for purposes of eligibility.

What about TOD and POD?
Bank and brokerage accounts with beneficiary designations built in are sometimes called payable-on-death (POD) or transfer-on-death (TOD) accounts. With a POD or TOD account, there is no transfer of ownership during lifetime, with the transfer to the named beneficiary occurring at the death of the account owner. The process in providing names for TOD an POD accounts is often rushed or if not handled immediately – overlooked. how the account is titled can mean a big difference with how the account is treated during the estate administration process. Even if the accounts have all children named as beneficiaries, there can still be problems. For example, providing for all the children equally may not be fair or if unequal, may cause hurt feelings and resentment. Also, if there is a will or trust that provides for bequests to others or to charity, there may be no money to pay for them because it all goes directly to the beneficiaries.

What is the Better Way?
A better way to protect assets and avoid the pitfalls of joint accounts or beneficiary designations is to use durable powers of attorney and living trusts. The cost of creating an estate plan is easily offset by reducing the risk of your heirs going to battle over your assets.