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A husband is diagnosed with Alzheimer's or has a short stay in a nursing home. At the time, friends and family advise his wife to go ahead and add the children's names to her bank accounts and mutual funds as a way to protect assets from Medicaid and avoid probate. Medicaid is the program which pays for a person's long term care due to chronic illness if they cannot afford it. Is this the right thing to do? If only it were that easy. The answer is that it depends.

The main advantage of joint ownership is that it is simple to accomplish. Upon death, ownership transfers easily to the surviving joint owners. It also avoids the necessity, delay and costs of probate. Anything that is titled or registered in an individual's sole name, (with no beneficiaries listed), is subject to the probate court supervision process. The disadvantages are that creditors of joint owners can reach the property upon a divorce, bankruptcy or in a lawsuit. Also if a child who is a joint owner dies, their share does not pass to their children automatically, but rather to the other sibling joint owners.

For Medicaid purposes, all joint property is not treated the same. Adding a child's name to a bank account, CD or money market does nothing to protect the asset no matter how long ago the joint account was established. This is because Medicaid treats all cash accounts as owned 100% by the Medicaid recipient. Additionally, married couples are treated as one person. It doesn't matter which spouse own the assets.

On the other hand, joint ownership of stocks bonds, mutual funds, real estate and business property is treated differently. Owners own in proportion to the number of owners (i.e. 4 owners equal 25% interest each) provided that more than 5 years has passed since the account was established. Medicaid deems that the adding of names to the above assets is a gift subject to the 5 year look back period and subject to being disqualified from Medicaid benefits even if you are otherwise eligible. The new laws are designed to prevent these types of gifts. Going back to the above example, adding the children's names to the mutual fund accounts may prevent Dad from being eligible for Medicaid if the timing is not right. It is all about the timing.

There may also be some unintended income, estate and gift tax consequences associated with joint ownership.

Whether it makes sense to add someone's name to real estate or financial accounts depends on the facts and circumstances of each situation. There are some exceptions to the penalty rules which many people just don't know about. That's why its important to consult an elder law attorney for advice. What is right for one case may not be proper in another.

The bottom line is, in uncertain economic times people want to protect what ever it is that they have left. Who can blame them.