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 may be more of a hassle than it’s worth. Doing so may have unintended consequences for both you and the child.
First, the money in your account could be diverted to unintended parties. As of 2015, if the account holds anything over $14,000, you have had to notify the IRS and possibly pay gift taxes. Requiring that both you and your child to sign off on all withdrawals may be a way of working around this issue but that defeats the purpose of holding the account jointly in the first place. In addition, if the child divorces, is in debt, or has a legal judgment against them, the account becomes available to the ex-spouse, creditors, or plaintiffs, just because the child’s name is on it.
Second, 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.
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 MaineCare, 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.
Finally, there are a few other unintentional 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, 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 consequences for both you and your child. We can help you find ways to protect your bank accounts during your lifetime, and pass money on to your children without the threat of creditors reaching that money.
This is one of the many topics we cover in our free educational seminars on estate planning; we have three seminars coming up on January 29th, January 30th, and February 4th so please visit our website or give us a call at (207) 358-3270 to register today!