Happy Sunday!

Today I want to talk about bank accounts.

They seem pretty straightforward, but there can be some HUGE consequences if you don’t understand how they operate.

Here’s an example from a conversation I had with a potential client this week…

Wife was calling because husband had passed, and at husband’s passing, his half of the bank account was supposed to go into an irrevocable trust. They wanted to make sure there was an inheritance for the kids and allow Wife to be eligible for Medicaid without having to spend down all the assets (and have Husband’s assets available to her).

They set up a trust, inside of their Will (which I’m 100% against), and the Will directed Husband’s assets into this trust when he died.

The problem was twofold here.

First, because the trust doesn’t come into existence until death, probate is necessary to move the assets into the trust.

Second, and here’s the important part for our discussion today, because Husband and Wife were on the bank account together, when Husband died the account IMMEDIATELY became her account 100%.

Why is this a problem?

If the account was just in Husband’s name, the account goes into the trust, is immediately available for Wife, and her eligibility for Medicaid is not at issue.

Because the account was joint, however, it immediately becomes Wife’s account. For her to put that money into the new trust it is now considered a GIFT from her – she’s going to need to file a gift tax return AND the Medicaid eligibility clock starts ticking and she’s not eligible for Medicaid for 5 years from the date of that gift.

Bottom line – it’s ALWAYS better to execute a Power of Attorney if you want someone to help you manage your financial accounts.

If you’re ever considering doing things with your bank account, please reach out and ask us if there are any unintended consequences.

In this case, the error wasn’t discovered until it was too late.

Have a great week!

Cheers.

Founder/CEO
CMS Law Firm LLC