Although it can be useful to have another party available to keep track of bills when you’re sick or away, adding a child’s name to a bank account is putting you and them at risk! Read on to learn more because you may be surprised.
First of all, the money in your account could be diverted to unintended parties. As of 2018, if the account held anything over $15,000 (annual gift amount to an individual), you would have had to notify the IRS and possibly pay gift taxes. If the child divorces, is in debt or has a legal judgment against them, the account becomes available to their financial creditors and predators, such as, in laws or become outlaws, ex-spouse, creditors, or plaintiffs, just because the child’s name is on it. Any time of turmoil your hard earned cash is up for grabs. Also, if you or your spouse became completely incapacitated and could not afford the $15,000.00 per month nursing home Medicaid could construe you putting your child’s name on your assets as a gift which would disqualify you for medicaid benefits.
Secondly, putting someone’s name – and a potential beneficiary’s name, at that – may frustrate the intentions of your will. Because your child’s name is on your account, they have “rights of survivorship,” which means that the entire account goes to them. If you wanted your assets divided equally between your children, for example, then whichever has their name on the account will now get more than the other. This from my experience is an invitation for a family feud!
Third, your child could lose eligibility for public funds, and your grandchildren could lose the opportunity for scholarships and financial aid. If your child ever needs public assistance, such as Medicaid, the account will be counted as an available resource and may make them ineligible. Likewise regarding your grandchildren; they may not be able to get student aid if the account which their parent’s name is on inflates their parent’s assets.
Fourth, I often here folks say when I am teaching our educational elder law workshops, “Patrick, can’t I just put my kids on the deed of my home?” I cringe when I hear that question because I have seen sad cases where the child on the deed pushes the aging parent out of their own home. Even if you have a trustworthy child I strongly advise people from doing this because the child added to the deed most often does not live at the property which means your child will get slammed with a BIG capital gains tax bill when they go to sell the home after you die. Your child will NOT be happy with you if there accountant tells them they owe $80,000.00 in capital gains tax.
Finally, there are a few other potential consequences. If your child dies before you, then the money in the account (if held as tenants in common) could be part of their estate and would be distributed under the terms of their will, rather than yours. Or if your child spends the money in the account without your permission, because their name is on the account they would not be required to pay you back. Either way, the money in your account would have ended up out of your control.
Even though adding a child’s name to your bank account seems harmless, it can backfire, and lead to very costly consequences for both you and your child. We can help you find ways to protect your bank accounts and home during your lifetime, and pass money and the family home on to your children without the threat of financial creditors and predators and the tax-man reaching into your pockets to take your hard earned money.