Should I Add my Adult Child to My Bank Account?

Many people believe that a "hack" for avoiding probate or enabling their children to assist them as they age is to add their children to their bank accounts. You heard from your barista, whose neighbor's cousin's non-attorney boyfriend said it was a good idea. This strategy sounds fantastic in theory, but it often backfires. There are many reasons why this approach could end in disaster for both you and your children.

Downside to adding your children to your account

The downsides to adding someone to your bank accounts can be significant. On a joint account, whether it's a bank account or investment account, the person you add has the same rights and ownership of the account as you do. The legal consequences of this joint ownership can be devastating. This includes:

• Stolen Funds. Once your child is listed as an account owner, they can withdraw some or all of the funds in the account without consulting you. While your child may be someone you trust, the temptation can sometimes be too great. If your child were to drain an account, you would have no recourse to get that money back.
• Lawsuits. Your accounts will be at risk if your child gets sued. All it takes is one severe car accident, or one slip and fall on your child's property, and your account is now considered collectable in the lawsuit against your child. 
• Creditors. Your child's creditors can use the account to satisfy debts. It is not uncommon for an individual to lose their job and then have a major medical event take place while they have no medical insurance. Over 60% of bankruptcies are filed due to medical debt. If this happens to your child, and they need to file for bankruptcy, your accounts will be used to pay your child's debt.
• Divorce. If you child gets divorced, their former spouse may attempt to pull your accounts into the divorce case because your child is listed as an owner on the accounts.
• Difficult to undo. Adding a joint owner to your account is fairly easy. However, removing them is a nightmare. If your child is added to your account and you later decide to remove them, you must obtain their agreement and signature to remove them as a joint account holder.
• Disability. If your child is injured to the point where they are permanently disabled, your accounts will be included in determining their eligibility for disability benefits. You may be forced to use your accounts to pay for their care.

A Better Plan

So, what can you do instead? There are two main documents you can prepare that will 1) allow your children to inherit your accounts without having to go through probate and 2) enable your children to assist you with your accounts without making them the owner of your accounts.

• Transfer on Death or Payable on Death. Your bank has a form that allows you to name a beneficiary on your accounts. These are often called a transfer on death form or a payable on death form. This document tells your bank who to give your money to upon your passing. By setting up a transfer on death, you both avoid probate and ensure your children will receive your money upon you passing without giving your children any ownership in your accounts during your lifetime. 
• Durable Power of Attorney. Naming your child as your Power of Attorney allows them to write checks, move money, and manage your accounts without owning the accounts. This gives your child the power to help you with your accounts while still holding them accountable if, for any reason, they fail to act in your best interests. Powers of Attorney are also revocable at any time, which allows you to take back control, if needed, without going through a bunch of hoops. 

If you are concerned about making sure your children inherit your money without probate or planning for situations in which you may need help managing your money, click here to schedule a free consultation with an experienced estate planning attorney.