Question: My 83 year old father lives in the same city as my brother. While I was visiting, my father mentioned to me that instead of paying a lawyer to prepare a power of attorney, he took my brother to the bank and put him as a signator on all of his accounts. Dad owns no real estate, and his bank accounts total nearly $100,000.00.

There have never been any secrets in our family, but I was concerned about this move. All money in the accounts came from my father, and all new money comes from his Social Security and pensions on which he pays income taxes. My questions are: 1) Isn’t a power of attorney better than what Dad did? 2) Does my brother have to pay income tax on money he may take from these accounts for his own use, if he does? 3) Can my brother take money out of these accounts?

Answer: First and foremost, in our view, placing a child’s name on a bank account in lieu of signing an appropriate durable power of attorney is a mistake for a number of reasons:

1) Although there is already a fiduciary relationship between your father and his children, a durable power of attorney is a much better way in which to allow a trusted person to make financial decisions for the signator should he or she become incapacitated because it outlines the duties and responsibilities of the agent.

2) If your father intends for all assets to pass to you and your brother equally at his death, he has derailed his estate plan by placing your brother’s name as a joint account holder as this move effectively means that at his death, your brother owns all accounts – to your exclusion – which appears to be an unintended result.

This can be cleared up in most states by your father leaving a letter with the bank telling them that by placing your brother’s name on his accounts, he intends only that your brother assist him with the account and that he does not intend for your brother to receive the accounts at his death.

As to your other questions, your father, not your brother, is responsible for the income taxes generated by these accounts. Should your brother withdraw money from one of these accounts during your father’s life, the amount withdrawn is considered to be a gift from your father to him which is not taxable as income to your brother. The caveat here is that to the extent this gifts exceed $12,000 in any year, your father should file a gift tax return even though no taxes would be due.

A word to the wise: Get your father to a qualified attorney who can advise him of his options.