Paul O. Dillon, Attorney at Law

What Women Preparing for Retirement Need to Know

One woman’s story is a warning to everyone. Four months after Caroline S. married for the second time, she received a notice from the IRS about back taxes her new husband owed—$1,600 would be taken from her tax refund to make up the difference. Her new husband blamed his ex-wife, saying she hadn’t prepared their returns correctly. A few months later, the IRS put a levy on the couple’s new joint bank account and froze the funds because he was not paying withholding taxes.

As described in the article from Kiplinger, “What Every Woman Needs to Know Before Retiring,” it took two years and $50,000 of Caroline’s money to clear her debt to the IRS. There had been no sign of her second husband’s having financial problems and no reason for her to be concerned about the IRS until there was. Her advice: Keep your eyes wide open and your accounts separate.

Not knowing their household’s financial situation is among the biggest missteps women make. If they find themselves single, through divorce or death, the challenges can be daunting. Women tend to live more years in retirement and earn roughly 84 cents for every dollar men earn. Women represent 55% of all Social Security beneficiaries aged 60 and older, and their percentages rise as the population ages. The highest rate of divorces now involves couples between ages 55 and 64.

However, youth is no guarantee of financial security. One couple was in their mid-forties when the husband died. The wife, a self-proclaimed planner, had wisely addressed estate planning and legal issues when they were relatively young. There were living wills and trusts established, and life insurance policies purchased. The husband had gone to medical school after a successful career in engineering and had $100,000 in outstanding student loans, which were canceled because only his name was on the loans.

Even with all of their planning, this widow had a lot to deal with, managing trusts, bank and investment accounts, credit card transfers and the avalanche of paperwork and digital assets following the death of a spouse.

How to prepare? Have a complete team of advisors, including an experienced estate planning attorney, a financial advisor and an accountant. An estate plan should be integrated with tax planning and household budgets. This checklist can help:

• Have the money conversation before moving any relationship into serious waters. Make sure that you’re on the same page as your partner and get full disclosure of their financial status.
• Don’t leave financial matters for your spouse or partner to handle without being involved at all.
• Familiarize yourself with everything – all property, all accounts, all debts—and be a part of all decisions.
• Fully fund your own 401(k), IRA or other retirement account.
• Consider adding life insurance and long-term health insurance to cover future hardships.
• Make sure wills and other estate planning documents are current and update them periodically.
• Ask your estate planning attorney whether each person in the couple needs to have their own trust.
• Keep individual loans in separate accounts, so the surviving spouse will not be liable for the debt.
• Don’t mingle accounts and funds any more than absolutely necessary to run the household.
• Keep at least one credit card in your name only. An individual credit history can go a long way if you are divorced or widowed.

Reference: Kiplinger (Feb. 24, 2024) “What Every Woman Needs to Know Before Retiring”

Should I Add My Elderly Dad as a Co-owner of My Checking Account?

There are several issues to consider when you add an elderly parent as a co-owner of your checking account, says nj.com in its recent article, “Is having a joint bank account with my father going to cause any problems?”

The father is still a named joint holder of the account, so he can withdraw some or all of the funds in the checking account at any time. As a result, the transfer is neither a completed gift nor a payment from the father to the adult son, until the son withdraws funds.

If the elderly father predeceases the adult son, the checking account would be included in his taxable estate. There may be taxes due on the estate, depending on the size of the estate and the state in which he lives, since some states have their own estate taxes at much lower levels than the federal thresholds. In New Jersey, there is a procedure where a tax waiver would need to be obtained to release the funds to the son in this case.

If the adult son dies before his father, the checking account funds would automatically pass to the father by operation of law, and not pursuant to the terms of the son’s will, nor to his children or spouse.

In light of the fact that the father can withdraw the funds during his lifetime as a joint holder of the account, those funds in the checking account are subject to him being a victim to scams.

To safeguard these funds, the adult son should take the time to properly title the checking account. If the transfer of funds was a gift to the son in excess of $15,000, the father would also need to file a Form 709, U.S. Gift and Generation-Skipping Transfer Tax Return, even if no tax is due because the federal gift and estate tax exemption is at $11.4 million per person.

If the transfer was made by the father to qualify for Medicaid, it is important to understand that the Medicaid five-year look-back period and penalty could be an issue. The look back is from the time of the application. Any gifts or transfers made within this period, are subject to a penalty, that is equal to a period for which Medicaid benefits are denied. Since the transfer isn’t complete until the son removes his father’s name from the account, for purposes of Medicaid qualification, it would be best to remove the father’s name ASAP.

A joint account may also be subject to legal judgments, collections and other debt collection efforts.

Reference: nj.com (September 25, 2019) “Is having a joint bank account with my father going to cause any problems?”

Is Having a Joint Bank Account with Mom a Good Idea?

Opening a joint bank account with your aging parent sure sounds like a good idea. But NextAvenue’s article asks, “Should You Have a Joint Bank Account With Your Parent?” It turns out there are some real issues with this plan.

A joint bank account can be a quick and easy way to help your parents pay bills and monitor their spending. With you monitoring their account, it’s also easier for you to see potential fraud. It allows an adult child to watch for unauthorized purchases or other issues with the account, like late fees or overdrafts. Another benefit is that in the event of your parents’ deaths, you will have immediate access to the account funds, without the need to go through the probate process. This can be helpful when paying burial and other final expenses.

However, there’s plenty that can go wrong if you have a joint bank account with your parents. First, your parents’ money won’t be safe from your own debts or liabilities. If something happens to you, like an accident, divorce, or bankruptcy, you’ll be putting your parents’ money at risk. Depending on the rights of survivorship on the account, all the money in the account could go directly to you when the last of your parents dies. That would disinherit your brothers and sisters.

If you make deposits to the account yourself, it may impact your parents’ eligibility for government benefits, like Medicaid. A joint account may also play a role in your child’s student financial aid eligibility because government and financial institutions can designate all the money in the joint account as your money—even if half of it is yours and half belongs to your parents.

There can also be tax implications to having a joint account. The IRS could deem this to be a gift, triggering a gift tax return, if the account is valued above $15,000 (from each parent for 2018). Likewise, if the parents and adult child open a new account together, and the parents deposit a large amount of money which the adult child later withdraws, it could arguably be seen as a gift.

Look at these options that might work better for you and your family, instead of a joint bank account:

1. With signature authority on an account, you can pay your parents’ bills;. However, you won’t be authorized to use the money in ways that aren’t for their benefit, and the money will be protected from your creditors.
2. With power of attorney, an adult child can make financial decisions on the accounts that are titled in the parents’ names. The POA should be durable, so that it will still be in place, if the parents become incapacitated.
3. Your parents can create a revocable living trust, appoint you as co-trustee and open a bank account in the name of the trust with two or more signers. Talk with an estate planning or elder law attorney to see if this makes sense in your situation.
4. If you’re worried about your mom or dad’s mental capacity, you petition the court for guardianship, which will let you to manage his or her finances. The guardian doesn’t own the funds, and the money can’t be garnished or seized to settle a guardian’s debt. However, it’s a difficult and complicated process. All concerned may be better served to have a durable power of attorney in place, before a parent becomes incapacitated.
5. If the biggest worry is avoiding having money tied up in probate after a parent’s death, your mother or father can add a “Payable on Death” provision to a financial account. The money in the account will then bypass probate and be paid directly to their beneficiaries. However, speak with an experienced estate planning attorney before doing this to make certain that this won’t contradict a will or any other estate planning that already has been done.

Reference: NextAvenue (July 17, 2018) “Should You Have a Joint Bank Account With Your Parent?”