Should I Make my Adult Child an Owner on my Bank Account? No!

January 03, 2011

Clients often ask me whether they should put their adult children on their bank account as owners. It will make things easier, they reason, if they ever need their children to help handle their affairs. Yes, that is true, but there are perhaps 10,000 reasons why it could make your financial affairs more difficult. This post will cover just a few of those reasons.

When you add another adult (your child, your caretaker, your grandson, whomever) to your bank account, that person becomes…an owner of your bank account. Which means legally that your child can access the money in the account any way he sees fit. Sure, you intend for him to write checks to the electric company while you’re on vacation or in the nursing home. But what about if he instead writes checks to cover his cable bill or a ski trip? If he is an owner of the account, he is authorized to write checks from the account to whomever he chooses, be it Spring Valley Care Center on your behalf or Welch Village Ski Resort on his.

Now you may be shaking your head. Your loved one would never take advantage of you financially like that, so there is nothing to worry about, right? Well, I believe you that you can trust your family. I trust mine in the same way and would gladly give them access to everything I have, except that there are other situations in which it could backfire, no matter how trusting and responsible you and your family are with one another.

Imagine that your daughter is a joint owner of your bank account. During one snowy Minnesota winter on her way from Rochester to Austin, she slides out of her lane, hits another car, and injures someone. When all is said and done, there is a judgment against your daughter in Mower County and it’s more than insurance will cover. The whole thing was an accident and yet, her assets are now available to cover the judgment. And her assets include your bank account.

The same situation holds true if that adult child goes through a divorce.  Maybe your adult son lives in Stewartville with his family, right up until he ends up in Olmsted County Court settling a marriage dissolution.  Your bank account may be considered as part of your child’s assets. And your funds could be distributed to your former in-law as part of the divorce.

What about when you pass away? Since your child is on the bank account, he is a legal owner and will be under no obligation to share the funds with siblings or other heirs. Not to mention the possible tax consequences that could arise. Contrary to popular opinion, it is not a good idea to give your children your bank account before you die instead of writing a proper will or estate plan.

So what can you do instead to maintain flexibility and protect your assets? If you need the child on the account now and you trust him, consider making him a signatory (not a co-owner).  Bankers in rural Minnesota are very helpful…ask your bank how you can set up the account to give your child signing privileges without making him an owner.  And if you’re considering it for estate planning purposes, please contact a qualified estate planning attorney who can help you develop a more comprehensive estate plan.

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