A joint account should only be created with someone you completely trust. To understand why, keep reading this article.
There will be times in your life when you will be unable to make decisions for yourself. In such instances, you will have to entrust your financial choices to someone you believe will know what is best for you, whether it is a friend or a family member.
With a joint account and a power of attorney, the person you choose will have complete control over your finances. However, before making such a significant decision, you should thoroughly understand how a power of attorney and joint account work, as well as the potential consequences.
People frequently worry about aging and reaching a point in their lives when they can no longer handle their finances. A joint account and a power of attorney can be handy in this situation. They do, however, have both risks and benefits. This article tries to clarify your understanding of joint accounts and powers of attorney.
Understanding Joint Accounts and Powers of Attorney
What is power of attorney? While this is the most popular question on people’s minds, it has a fairly simple answer. A power of attorney is a legal document in which you authorize one or more people, known as “attorneys,” to act on your behalf in financial or legal concerns pertaining to your property, finances, or other legal matters.
Despite the fact that the phrase includes the word “attorney,” this chosen individual does not have to be one. It might be a member of your family, a friend, a lawyer, or an organization in which you have complete faith that they will make the best financial and legal decisions on your behalf.
Different Types of Powers of Attorney
General Power of Attorney: this power of attorney gives the attorney-in-fact (the person you have chosen) the authority to buy or sell properties, file tax returns, sign contracts, complete financial taxes, or conduct other financial operations on your behalf.
Health Care Power of Attorney: this gives the attorney-in-fact the power to make any medical decisions if you are not in a condition to make them yourself.
Special Power of Attorney: this power of attorney allows you to restrict the financial decision-making ability of the attorney-in-fact.
Durable Power of Attorney: in case you become mentally incompetent, this power of attorney allows you to name a person that can take action for you in your absence. This can either mean the power of attorney that already exists will continue, or this can be the beginning of a new power of attorney.
What Is a Joint Account?
An account that is shared by two or more people is known as a joint account. Each person has equal access to the account. Any account holder, regardless of who deposited the money, can take funds from a combined checking or savings account at any time.
Joint bank accounts are common among married couples, but you can open one with anybody you like, including your child or perhaps another relative, a business associate, or a friend.
Before you register a joint account, make sure you can trust this person completely. This person has the power to steal all of your money by using your confidence. In that circumstance, the bank is powerless to intervene. To obtain your half of the money back, you’d have to go to court. Therefore, it’s critical to keep an eye on things by reviewing your bank statements on a regular basis.
Risks and Advantages of Powers of Attorney and Joint Accounts
Power of Attorney
Having a power of attorney has many advantages as well as risks. A few of them are listed below.
- A power of attorney clearly indicates who is in charge if you are unable to handle your property or money (even for a short period of time). The attorney-in-fact will have to make judgments that are in your best interests, and the court can hold them accountable by compelling them to explain how your finances are managed.
- You have the option of appointing one, two, or more attorneys. You can delegate decision-making to a single individual in some cases and a group of people in others. You can be as general or particular as you like with a power of attorney, providing you a lot of flexibility. The safest approach to avoid fraud is to have joint attorneys.
- The greatest risk is that your attorney will betray your confidence by misusing your funds or making decisions that favor them rather than you.
- If your power of attorney is excessively broad and vague, the attorney-in-fact may use it in ways with which you disagree and mismanage your finances. However, if it is too limited, the attorney may not have complete authority to act in your best interests.
- This account is simple to maintain. All wages are deposited into a single account from which bills, mortgage payments, and savings can be deducted. Money goes in and out from a single account, making financial administration simple.
- In the case of newlyweds, a joint account might help to keep a partnership together and unified. You devote less time to monthly expense tracking. A joint account encourages income sharing as well.
- You won’t be able to do much with your account. The individual with whom you share an account has the ability to remove money at any time, and this money cannot be returned. Many relationships may be harmed as a result of this.
- Unless the funds deposited are a specific gift to one of the account holders or a specific sum to be invested in the estate, expensive and difficult-to-resolve legal conflicts may ensue. You can’t hold the other person responsible for your money being taken.
Think Before You Act
You should now have a good understanding of powers of attorney and joint accounts, as well as their dangers and benefits. Do not rush to a conclusion; instead, take your time and consider whether these will be useful in your life plan.