The dangers of joint bank accounts

Connect-20333_640 (1)We are not talking here about joint accounts on which spouses are the joint owners; virtually all married couples hold many of their assets jointly. Rather, we are talking about accounts where one person adds another to the account for “estate planning” purposes. Many people believe that joint accounts are a good way to avoid probate and transfer money to loved ones. 

However, although joint accounts can be useful in certain circumstances, they can have dire consequences if not used properly. Adding a loved one to a bank account can expose your account to the loved one’s creditors as well as affect Medicaid planning. 

Once money is deposited in a joint account, it belongs to both account holders equally, regardless of who deposited the money. Account holders can withdraw, spend, or transfer money in the account without the consent of the other person on the account.

Before putting anyone on a joint account with you, you need to be sure you can trust that person because he or she will have full access to the account. When one account holder dies, the money in the account automatically goes to the other account holder without passing through probate.

One problem with joint accounts is that it makes the account vulnerable to the creditors of ALL the account owners. For example, suppose you add your daughter to your bank account. If she falls behind on credit card debt and gets sued, the credit card company can use the money in the joint account to pay off your daughter’s debt. Or if she gets divorced, some or all of the money in the account could be considered her assets and be divided up in the divorce.

Joint accounts can also affect Medicaid eligibility. When a person applies for Medicaid long-term care coverage, the state looks at the applicant’s assets to see if the applicant qualifies for assistance. Although a joint account may have two names on it, most states assume the applicant owns the entire amount in the account regardless of who contributed money to the account.

If your name is on a joint account and you enter a nursing home, the state will assume the assets in the account belong to you unless you can clearly prove that you did not contribute to it.

In addition, if you are a joint owner of a bank account and you or the other owner transfers assets out of the account, this can be considered an improper transfer of assets for Medicaid purposes. This means that either one of you could be ineligible for Medicaid for a period of time, depending on the amount of money in the account. The same thing happens if a joint owner is removed from a bank account. 

There is a better way to conduct estate planning and plan for disability. A power of attorney will ensure family members have access to your finances in the case of your disability. If you are seeking to transfer assets and avoid probate, a trust may make better sense. To learn more, talk to your attorney.  And consider joining us for one of our upcoming workshops.  Just click here to find out more.


Choosing a Medigap Policy

Question-mark-1872665_640Once you become eligible for Medicare at age 65, you will be inundated with offers from insurance companies for Medigap (supplemental insurance) policies. Sorting through these offers can be confusing; there are 12 standardized plans, with HUGE differences in premiums between companies.

Medicare plans A and B cover only a portion of medical costs. Medigap policies fill in the “gaps” in coverage. The first step is to figure out what coverage you will need. The government currently has 10 standardized plans, each represented by a letter. Medicare publishes a guide, Choosing a Medigap Policywww.medicare.gov/sites/default/files/2018-07/02110-medicare-medigap.guide_.pdf that explains the differences in plan coverage. 

Consider these things when looking at plans:

  • If you regularly see doctors who charge above what Medicare pays, Plans F and G, which cover excess charges, may be your best bet.
  • Plans C, D, F, G, M, and N include coverage for travel outside the United States.
  • If you have a chronic condition with high medical bills, Plan K or L may work best. Both pay only a portion of covered expenses, but have a yearly out-of-pocket cap. Once you reach the cap, the policy pays 100% of all medical services.

Plans that cover the Medicare Part B deductible (Plans C and F in most states) will no longer be sold to most people who become eligible for Medicare after January 1, 2020. If you buy a Medigap Plan C or F before January 1, 2020, you can keep that plan and your benefits won’t change. 

Once you’ve decided what type of coverage you need, you next need to decide which company from which to buy. Medigap Policy Finder, www.medicare.gov/find-a-plan/questions/medigap-home.aspx provides a list of companies in your state.

Each plan covers the same medical services, but premiums can vary significantly. The companies use three different methods to set premiums:

  • Attained-age policy premiums are based on your age, so the premium automatically increases as you get older. Before buying an attained age policy, ask the insurance company for premium costs for the next age increments, so you’ll know what increases to expect each year.
  • Issue-age policy premiums are based on the age you first buy the policy. The premium will never be higher than the amount the company is charging new buyers at the same age. For example, if you buy the policy at age 65, in five years, the premium will be what the company is charging new 65-year-old buyers. While your premiums may increase, the increases may not be large because the company will keep premiums lower to attract new buyers.
  • Community policy premiums charge the same price to everyone in your area regardless of age. The premiums go up only when the insurance company raises premiums on all policies of the same type; increases are regulated by state insurance departments.

Although the premiums on an attained-age policy may be lower at first, issue-age or community policies are generally better buys; although more expensive at first, they doesn’t increase as much over time.

Some other things to keep in mind when choosing a policy:

  • Look for a company that files Medigap claims automatically, which can save time and effort.
  • Purchase from a financially sound company. Make certain that the insurer is rated in the top two categories by one of the services that rates insurance companies, such as A.M. Best or Weiss.
  • Contact your state insurance department to find out if the insurance company has any complaints filed against it.

Although finding the right Medigap policy can be daunting, these tips can help remove some of the confusion.  We also offer a free educational workshop to help with your estate and asset protection planning.  Just click here to RSVP for the day and time that works for you