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Tuesday, March 22, 2011

P of A sells house, puts funds in joint account with mom

Recently I had a question from a reader who was concerned about how his sibling (let's call him Joe) was handling their Mom's finances under Mom's Enduring Power of Attorney. The facts are that Joe, acting properly under the Power of Attorney, sold their Mom's house as she had moved into long-term care. So far, so good. But the questions started popping up because Joe put the sale proceeds into a joint bank account between himself and the Mom.

I'm not surprised there is concern about this. I'm concerned too. This is a completely inappropriate way to deal with the money. The money should be in the Mom's name only.

An account that is set up as "Joe, power of attorney for Mom" is still considered to be in their Mom's name because it makes it clear that Joe has no ownership of the money and must use it for Mom's benefit only.

Why would the funds be placed in a joint account in the first place? Joint ownership of a bank account means joint ownership of the money. When Mom passes away, on the face of it the funds will belong to Joe. As we know she has more than one child, it's quite likely that she wants her estate to be divided among them when she passes away. If it was Mom's house, why is Joe effectively giving money to himself by putting it in a joint bank account? This can be viewed as theft, depending on what happens next.

Often the excuse given for joint bank accounts between parent and child is that the parent wants the child to have access to help with the banking. That excuse isn't going to wash in this case. This decision wasn't made by the parent, but by Joe. Joe already had access to the funds by using the Power of Attorney. So there is no logistic excuse.

In cases like this, a person in Joe's position will often say that his Mom told him to set up the account because she wanted him to have the money, usually as a thank-you for looking after her. This isn't going to wash either. If the Mom still had the mental capacity to deal with her money to the extent of dealing with what is probably her largest asset, Joe wouldn't need to act under a Power of Attorney in the first place.

Besides, a person acting under an Enduring Power of Attorney isn't allowed to benefit personally from his or her position  (other than as specified in the document itself).

A further problem is the fact that a large amount of money (I don't know the sale price of the house) is sitting in a bank account rather than being invested. Another mistake by Joe. He should keep a reasonable amount on hand for operating expenses, then invest the rest to make the most of it.

The only two ways that Joe's actions in setting up the joint account with himself could be seen as appropriate are that a) his Mom's Power of Attorney specifically asked for that to happen (possible but not probable) or b) Joe has seen his Mom's will and knows that he is supposed to inherit the house on her death. And even then, the ground is shaky on the second possibility because their Mom is still alive.

Joe should immediately remedy this situation. Perhaps he really doesn't understand why he should not have opened a joint account. He wouldn't be the first person doing his best under a Power of Attorney but flying blind. Perhaps my reader should show Joe this blog post! This will give Joe a chance to explain his actions and reveal any good reason he may have that his sibling doesn't know about. And if it was a mistake, Joe can fix it by setting up the account properly.

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