asset protection via joint bank account?

[Chris111]

What is the name of your state (only U.S. law)? Arizona

I have an aunt in her late 70's who has significant assets. She didn't marry until later in life, and the finances of both have been kept separate. She owns the home and has a generous pension and other assets. Her husband has very little, as he did not plan for his future before they met, and his small SS income is usually frittered away, and he has accumulated significant credit card debt. She learned over time that he is financially reckless.

She would like me to open a bank account in which I am the owner and she is an authorized user (we are aware of the tax consequences of gifts made over 12K or whatever the new limit is, so that is not my question....) I understand that if I am the owner, no liens could be placed against the bank account if the husband ends up with legal trouble for his debts. But I would rather not be the owner if having a joint account with her would serve the same purpose.

So my question is: if she and I were to have joint ownership on a bank account, would that protect said bank account from liens, if some of his creditors were to try to collect on his debts?

Thanks for your help.

 

[curb1]

Why not be the owner? A key question is, "how much are her "significant assets"? There could be no gift tax responsibilities/liabilities (except filling out the gift form) if her assets are lower than the lifetime exclusion. If you are a trustworthy person there most likely wouldn't be a problem. If you are not trustworthy it could be a mess. Be very transparent with her.

It is good that she is thinking ahead. What is her health situation?

"Why it pays to understand the federal gift tax law
If you give people a lot of money or property, you might have to pay a federal gift tax. But most gifts are not subject to the gift tax. For instance, you can give up to the annual exclusion amount ($13,000 in 2009 and 2010) to any number of people every year, without facing any gift taxes. Recipients never owe income tax on the gifts.

And you can give up to $1 million in gifts that exceed the annual limit—total—in your lifetime, before you start owing the gift tax. If you give $15,000 each to ten people in 2009, for example, you'd use up $20,000 of your $1 million lifetime tax-free limit—ten times the $2,000 by which your $13,000 gifts exceeds the $12,000 per-person annual gift-free amount for 2009."

 

[Chris111]

Thank you very much for your response, and for the details on the lifetime exclusion, etc.

We actually have no debt other than rapidly decreasing mortgage debt. We have taught our kids to carry no debt other than for the purchases of homes, and to use a credit card only to build their credit (and to earn air miles), and to pay their balances in full every month (which they do). So some would consider us hyper-responsible as we do have very high credit scores.

So I suppose I could be the account owner, but was just not too thrilled about the idea. I can get over that, though. So it probably would be safer to have the accounts in my name without her as a joint owner, and we can go forward with setting up her cash accounts that way.

My aunt's health is decent for her age - I would expect her to have at least another decade of life, hopefully. Her assets, including the value of the home, annuity, IRA, and cash accounts are at about 700-800K, and she has no debt.

But... as I posted this yesterday, I also e-mailed an attorney who set up a trust for her, and I will post the interaction here, with the identifying info removed. His e-mail has caused me a little more confusion, so I would appreciate any further insights you may have.

My e-mail to the trust attorney:

Good afternoon, XXXX,

I talked with (my aunt) over the weekend and (my spouse) & I thought we might (ask) you these questions, as (my aunt) is pretty alarmed about the situation:

AZ is a community property state, and (the husband) is wracking up large amounts of credit card debt (tens of thousands of dollars) and is at high risk for being served with a warrant in debt as he has defaulted on his payments (after signing up with a credit solutions company called Square One, which we know is a mistake, but none of us can control what he does). (He has no other real bills/responsibilities except that he has contributed partially to utilities and food - he has spent money on gambling, and online investing, while not paying off his credit cards! It is maddening, but no one can stop him from his reckless spending. His only real income is about 900/month from SS, and since he had us added to his checking account, we can see what he's doing on that account, and in 2009 alone, he accumulated about $700 in bank fees for returned checks and what not.) So...

Are all of the following protected in trusts (from (the husband's) debts), or can liens be placed against (my aunt's) assets for any of these (which are all in her name):

Home (free & clear)
Annuity
IRA
Vehicles
Monthly pension & social security income

She is talking about having the house put in our names, but if she goes forward with that, wouldn't it be better to still keep in it some kind of a trust? Or if it is already protected (in its current trust) from liens for (the husband's) debts, I can't see any reason for putting the home in our names, unless there's something I'm not aware of.

Thanks for your help,
XXXXX

The trust attorney's e-mail response:

Hello! There isn't an easy answer to those questions. It depends on how the credit cards were set up. In Arizona, spouse are responsible for the debts of their spouses. It is the same in most states. But, accounts can be set up that are separate accounts, so that (your aunt) would not be responsible for (the husband's) spending.

To do this the right way, all of those "joint" or "possibly joint" accounts should be paid off and closed. (The husband) should and does, I think, have a separate bank account and the funds to pay off the debts must come only from that bank account -- NOT FROM (YOUR AUNT'S)! She can gift money to him to make the payment, but the payments must come from his account. We must try to keep their assets separate, as I think she has to date.

(The husband) could then open one credit card account only as a separate account. All his charges would be on that account and he would be solely responsible for paying it off each month from his bank account.

I wonder if (the husband) is still competent. He has been slipping the past couple of years. If he is not, she could go through the process of having him declared incompetent and he would have no accounts. If he is still competent, she could divorce him but continue to reside with him.

In all event, his bills must be paid and his accounts must be closed as soon as possible.

This happens quite a lot and can be corrected. (The husband) must cooperate or (your aunt) may have to divorce him. Counseling would be a good thing, but (the husband) might not be open to that, especially with his psych training and license.

And that's the content of the e-mail received from the trust attorney....

So, how are we to know which of his plethora of credit cards (nine that we know of) are putting her assets at risk? He doesn't disclose any of this to us or to her - we have to find out a little by doing our own detective work, yet they are many miles away from us, so this isn't easy.

And yes, he is a licensed clinical psychologist and his license is current. He actually sees just a few clients a month (maybe three?) re: substance abuse, I understand, and that very little income is a wash and pays for a tiny little office he keeps in town, but nothing more. He is also in his late 70's. And in reasonably good physical health for his age.

We will let her go forward with putting cash into accounts that we set up in our names, but which she will access as she wishes - but if you have any thoughts on the rest of this mess, we will be grateful for your input.