Often times a client will ask if they should add their child’s name to a bank account and the answer is usually No! The client believes that it will be easier during life if the child is on the account as the child can assist with tasks such as bill payment. They believe it will be easier when client dies if one child is in control. Clients also believe it will save probate costs, and my favorite, even if only one child is added to the account, client’s often misguided belief that child will share the account with siblings on client’s death even though there is no legal obligation to do so. In my experience, the child added to the account does not usually share. Even in cases where the child does try to do the “right thing” there can be unintended results.
Here are some of the reasons a child should not be added to your accounts:
- If your child gets in to trouble, is involved in a lawsuit or has creditor issues and a legal judgment is obtained against him or her, your bank account may now be subject to seizure.
- If your child dies before you, the joint bank account could be a part of your child’s estate and pass to his or her beneficiaries. You may not have the use of your own money when and if you need it.
- If your child gets divorced, your bank account may be considered as part of that child’s assets in his divorce.
- If your child comes upon financial difficulty, it may be tempting to “borrow” or take money from the joint account.
If you still want to add your child to your account, carefully consider adding the child to the account in a fiduciary capacity such as “attorney in fact” under a Durable Power of Attorney or giving a simple signature authority, neither of which give any ownership interest. This will allow the child to use the account for your benefit, but any personal use would be a breach of his fiduciary duty to you.
If you do add your child to an account, check behind the bank to be sure they list the name correctly! Often, the bank representative leaves off an intended fiduciary designation and either makes the child a “co-owner” of the account, a “joint owner with right of survivorship” or the “pay on death beneficiary” when this is not what client intended. If client intended all of her children share in the account upon her death, with that simple and very common error, only one child inherits. It may be expected that the child would share the account proceeds with siblings but if they do, there may be gift tax consequences and for accounts over $14,000, a gift tax return may need to be filed. More often, the child will assume the parent intended for them to have the entire account and does not share the account with siblings.
Adding a child’s name is one of those simple mistakes that are made all too often and can have truly disastrous consequences as unintended asset transfers. Do not take advice from bank officers on this issue as they are not attorneys. Talk with your estate planning attorney to be sure you have structured your accounts properly and that your true intent is carried out.