While organizing their affairs, many people are led to believe by a representative of their local bank that it would be helpful to hold various bank accounts, savings accounts, and certificates of deposit as Joint Tenants with Right of Survivorship with a child. It is important to understand the meaning of this phrase since it may have important negative effects on your estate plan. Any person who holds an account with you as a Joint Tenant with Right of Survivorship will automatically become the owner of that account at your death. When they become the owner of the account, they have no obligation to share the money with anyone else. This means that if you were to identify a son or daughter as a co-owner of your account by designating Joint Tenancy with Right of Survivorship, then they would be the sole owner of the account at your death. If you have other children, these other children have no rights to claim the funds in that account. This may not be the result that you want.
Please also keep in mind that when accounts are owned in Joint Tenancy with Right of Survivorship all persons named on the account are legal owners of the funds. This means that any one of the individuals named on the account have the right to take all the money out of the account. This could be problematic if a child ends up with financial difficulties, is sued on a debt or for an accident, or otherwise suffers a loss. A creditor could garnish the bank account and obtain funds simply because your child is named as a co-owner on the account. Again, this is probably not the result that you want. As a general rule, using Joint Tenancy with Right of Survivorship is discouraged, except in the case of a married couple.
Instead of using Joint Tenancy with Right of Survivorship designation, many banks will allow you to instead provide for “signature authority” on an account. This means that you can designate someone else besides the owner of the account to have signing authority on the account. You should inquire about this with your bank. If your banker tells you that they do not allow for separate signing authority, then you may address the issue by using a Power of Attorney that is limited in scope to signing authority on your account. The Power of Attorney can be prepared, signed, and presented to your bank, thereby allowing one of your children to sign on the account without them becoming an actual owner of the account. This is probably the best method of addressing the issue, if banks do not allow for separate signing authority.
Most bank accounts have a Pay on Death Beneficiary Designation. Pay on Death is denominated by the short acronym POD on most accounts. A Pay on Death Beneficiary receives the funds in the account at the death of the account owner. Sometimes, people will inadvertently select only one child as the beneficiary of an account under a POD designation. Again, this may not be the result that you want. If you decide that you want accounts to pass directly to your children, then you should designate all the children you want to share in the account as POD Beneficiaries. Again, a POD Beneficiary does not have an obligation to share the account funds with non beneficiaries, even if they are siblings.
Please also keep in mind that accounts such as Individual Retirement Accounts (IRAs), Employee benefit plans, such as 401ks, life insurance policies and many other forms of retirement plans are subject to special tax rules. Improper changes could result in serious negative tax consequences. It is recommended that you obtain appropriate professional advice before changing beneficiary designations or status of ownership on such accounts or plans.