The Problem With Adding Your Child to Your Bank Account
A lot of aging parents choose to add their adult children to their
bank accounts as a matter of convenience.
After all, if the parent faces hospitalization or incapacity, it sure
makes things simple if the child can easily and seamlessly continue paying the
bills. But there are some risks involved
with adding a child as a co-signor on your account.
You could owe the IRS
If you merely add your child’s name to your account for
convenience, you probably never considered it a “gift” of money. But the IRS may disagree. As of 2015, the IRS allows you to gift up to
$14,000 per year to another person without paying gift taxes or notifying the
IRS. Adding your child’s name to your
account may trigger a gift tax, or, at the very least, require you to file
forms with the IRS.
Your assets can be
reached by their creditors.
In all likelihood, your child is a pretty responsible
kid—otherwise you would not be adding them to your bank account. But let’s say he loses his job and has
trouble paying his bills. If one of his
creditor’s obtains a judgment against him, your entire bank account could be
garnished—even if you were not involved with the debt at all.
Your child’s ex could
end up with your money.
If your child ends up getting a divorce, his ex will likely
be entitled to a portion of your jointly held account when the assets are
divided up. That’s a hard pill to
swallow—but even harder if you are not on good terms with your soon-to-be ex
daughter or son-in-law.
Your estate plan may
not accomplish its objectives.
Let’s say you have a will that states you want all your
assets divided equally between your son and daughter. But if you die with your son’s name on your
account, his “rights-of-survivorship” will cause the entire account to go to
him. He will essentially receive an
could lose college aid.
If your children have college-aged kids, a joint account
could actually hurt their ability to get student aid or scholarships. This is because the money in your account
will inflate their parent’s assets.
Your money could go
to your child’s heirs.
Most parents assume they will be the one to die first. But what if your child pre-deceases you? Some
of those funds would be considered part of your child’s estate and would
therefore be distributed to others under the terms of his will or under the state’s
A legal judgment
could empty your account.
Let’s say your child accidentally rear-ended someone and
became part of a lawsuit. Any claims and
judgments involving money against your child could reach to your account and
drain the entire balance.
Your child could lose
eligibility for public benefits.
Perhaps it’s not an issue now—but it could be. What if the day came that your child really
could use either temporary or permanent public assistance? . . . Medicaid, for
example. By having his name on your
account, your assets would be considered available resources in determining his
eligibility for public benefits. He
could be disqualified.
Ummm. . . . he could
take all your money.
Parents never think this will happen. But it has.
And it does. It often occurs when
a parent becomes incapacitated and is not likely to discover any
wrongdoing. Frequently, a child will
begin taking money in small amounts--maybe to buy a few groceries, or make a
utilities payment. If the child is
helping to care for the parent, it is easy to justify taking a little money
here or there. But this can ultimately
snowball out of control, until, in the end, much of the account, (or even the
entire account) is depleted.
Don’t unwittingly create problems for yourself or your
children. Think twice before adding a
child’s name to a bank account. Talk to
an attorney or financial advisor to explore safer alternatives, like a power of
attorney or a revocable living trust.