As we age, our cognitive skills begin to decline and our ability to take proper care of our finances begins to fade. When you hit that point in life, you run the risk of missing bill payments and losing track of other important account information. What do you do when that time approaches?
Start by determining who you can trust to help you with your affairs — whether it is a son or daughter, other family member, or trusted friend — and then decide the type of arrangement you want in handling your financial accounts. How much control do you want to maintain, and how much responsibility can you handle at this stage? Are you comfortable with relinquishing a certain amount of control, or does the concept give you pause?
One of the simplest ways to gain assistance and maintain greater financial control is through a convenience account. These accounts are also known as agent accounts, because by establishing such an account with an individual, you are authorizing that individual to act as your agent with respect to that account. Your designated agent is legally obligated to act in your best interests. The agent can withdraw or deposit money in the account, pay bills, and handle other basic banking functions.
A joint account allows a person to provide the same assistance, but gives the co-owner more rights than you may want to allow. A joint account co-owner is not obligated to act in your best interests as is the case with a convenience account; he or she could legally use the account for his or her own purposes.
Joint accounts also come with the "right of survivorship," meaning that the contents of the account pass on to the co-owner after your death. This can cause hard feelings in cases where one child is the co-owner of the account but the parent intended the account to be divided evenly. With a convenience account, there is no right of survivorship; the assets are considered as part of the estate.
A final advantage of convenience accounts is creditor protection. In the case of joint ownership, creditors of the co-owner can lay claim to the funds. Since the agent doesn't own a convenience account but simply has access to it, the account is out of reach of any of the agent's creditors.
Convenience accounts are not available everywhere. The Uniform Multiple-Person Accounts Act (UMPAA) provides the regulatory framework for regulating these accounts, and not all states have adopted these standards yet — although the accounts may still be available in states that have yet to adopt UMPAA.
It is important to clarify with the bank in writing that an account is a convenience account without rights of survivorship. With two names on an account and no clarification, courts may assume that it is a more common joint account. Lower-level bank employees may not even be aware that convenience accounts exist — you may have to speak to a manager.
Nobody likes to think about his or her eventual mental decline, but it is wise to get your estate in order before that time comes. Whether a convenience account is your choice or you prefer the simplicity of a joint account — or even granting a full power of attorney to your designate — take a little time to investigate the options and make your wishes known. Don't make your family and friends guess when it's too late.
Let the free MoneyTips Retirement Planner help you calculate when you can retire without jeopardizing your lifestyle.
This article was provided by our partners at moneytips.com.
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