Joint Account vs. Power of Attorney

By John Cromwell

When participating in estate planning, two devices that may be suggested to you are a joint account and power of attorney. Both require that you surrender some control over your assets and both allow you to limit the amount of a person’s access to specific assets. However, there are significant differences between the two. Before choosing any of these options when pursuing estate planning, consider what you are trying to achieve, because different options are better suited for different situations.

Joint Account

A joint account is a financial asset that multiple people can access without permission from the other co-owners. You may want to open a joint account with a spouse, family member or trusted friend to ensure someone can quickly access your funds if something happens to you. It is also a way to easily provide financial support to the account co-owner. A risk of having a joint account is that the other co-owners can drain the account without your permission. Also, if the co-owner has financial difficulties, a creditor may be able to claim the contents of the joint account to settle the debt.

Joint Accounts and Probate

When you die, most of your assets will go through probate, a judicial process that divides your property among your heirs and beneficiaries. This can be a time consuming and expensive process. Generally, joint accounts are exempt from probate and the accounts' co-owners retain control and access to funds in the account when another co-owner dies. In some states, if someone can provide clear and convincing evidence that the person who created the account did not intend for the other joint account owners to receive the funds when she died, the contents of the account go into probate. Therefore, it is important to make it clear when you create the joint account what you intend to happen to the funds when you die.

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Power of Attorney

When you draft a power of attorney document, you grant someone the ability to legally act on your behalf. Generally, this means that when a person signs a contract or makes a promise on your behalf as your appointed agent, you are required to follow through on those obligations. You can give someone a general power of attorney, which allows the agent to do anything you can do, but on your behalf. However, a power of attorney is usually restricted to only certain financial transactions. A well-drafted power of attorney will clearly establish what the agent is authorized and not authorized to do.

Fiduciary Duty and Agency

A power of attorney creates a fiduciary duty in the agent. This responsibility requires him to be loyal to you whenever he is acting as your agent and to take significant care when carrying out his responsibilities. When acting on your behalf, the agent is required to put your needs above his own. This means the agent cannot take your money to benefit himself. If the agent does not meet this standard, you can sue to recover what you've lost. The agent cannot take ownership of your assets -- only temporary control. Therefore, a power of attorney will not affect your estate or your heirs’ future ownership rights.

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Can a Power of Attorney Make Themselves a Joint Owner of a Bank Account?


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