As a person grows older, the idea of adding the name of a friend or relative to a bank account or house deed may appear attractive for a variety of reasons. For example, he or she might want to avoid probate or ensure that someone can handle finances in the event of illness. These goals are worthwhile, but disadvantages should also be considered before adding a person's name to a bank account or deed.
Q: What happens if I change the title to my home?
A: Once you add another person's name (for example, your sister's) to your house deed, she has the same legal rights to the property as you had as sole owner. In fact, she could move in or sell her portion of the property. She could also prevent you from selling the house in the future. She could mortgage her part of the residence or her creditors could place a lien against the property. Finally, should you decide to transfer title wholly to another person, she could legally evict you from what would then be solely her property.
Q: What happens if I add someone to my bank account?
A: The joint and survivorship bank account is another popular form of shared ownership. However, by holding funds in that kind of account, you take risks similar to those discussed above. The person (for example, your son) added to the bank account becomes a legal owner of the funds. He can make deposits and withdrawals from the account or use your money to pay his bills. His creditors can attach the account to satisfy his debts.
Q: How can I meet my goals and protect myself?
A: There are several ways to meet your goals without placing yourself at risk. Your interest in the house can be transferred to someone else, for example, subject to a "life estate" in your name. While a life estate does not fully protect your home from the pitfalls discussed earlier, it gives you the legal right to live in the home for the remainder of your life. You can also execute a Transfer-on-Death deed, which allows title of the house to transfer outside probate court to designated beneficiaries upon your death. The beneficiaries have no legal interest in the property while you are alive, and you can change beneficiaries at any time by executing a new deed.
Alternative bank account formats can help you achieve your goals while protecting your interests. For instance, a "payable on death" bank account allows you to direct bank funds to a specific individual upon your death, but does not allow that individual or his/her creditors to use or attach the funds during your lifetime. A "power of attorney" bank account enables another person to handle your financial affairs in the event you cannot do so yourself, but the account does not have to pass to that person upon your death. A power of attorney account does not entitle the person or his/her creditors to personally use or attach the funds during your lifetime.
Since there are many alternatives available which both protect your interests and satisfy your goals, discuss the options with your attorney and be sure you fully understand the implications of adding a friend or relative to your home deed or bank account.
Law You Can Use is a weekly consumer legal information column provided by the Ohio State Bar Association. This article was prepared by attorney Deborah A. Wainey.