Beware the Joint Account

I’m not talking about joint accounts with your spouse. That’s not usually a problem, in my mind. I’m talking about the joint account with your adult child. Most of my clients with adult children have put a child on a bank account with them for a variety of reasons, including:

“I want them to be able to easily pay my bills after I die . . .”

“They help me pay bills because I don’t like to anymore . . .”

“I thought I should . . .”

My first advice to them is always: take your kid off your account unless there is a legitimate reason, during life, to have him/her on there. I say this because, 99% of the time, adding a child to your bank account results in unintended consequences, including:

1. The child inherits the entire account upon your death. This might be OK if you want her to get it, but it’s not usually OK with your other kids, who have no legal right to any part of that account because your one child was listed on the account with you.

2. If the listed child decides to “do the right thing” and split the account with your other children, that is considered a gift and there is a potential tax consequence to that child.

3. Your listed child technically has complete control over the account as a joint account holder, so he could withdraw all of the money from the account, at any time, even if it’s not used for your benefit, and you would have a hard time getting it back.

We call this “estate planning by teller” because it’s so easy for a teller at a bank (I was one for four years, so I know) to click a box that creates a joint account with survivorship rights. It usually goes against everything you have set up in your more formal estate plan and creates a lot of heartache (and attorneys’ fees).

The alternative to listing your child as joint account owner is to simply put them as your attorney-in-fact in your Power of Attorney and/or as your executor in your Will. These legal documents work to give the child the requisite authority at the appropriate time and in the appropriate way . . .

A Power of Attorney becomes effective when you are incapacitated. At that time, your child can be added to the account in his capacity as your attorney-in-fact, meaning he doesn’t have ownership over the account and can only use it for your benefit. Also, listing him as the power of attorney instead of individually means that he won’t receive it all when you die and it will be split with the rest of your estate.

A Will becomes effective when you die. Upon appointment as executor by the court (which can happen as soon as it needs to after you die), the executor will have access to all of your assets, including your bank accounts.

In short, there are very limited reasons that you should list an adult child (or any joint owner, really) of your bank accounts. Sometimes it makes sense, but it’s worth reviewing that reason and ensuring it doesn’t mess up your estate plan or create any unintended issues for your children. The best way to handle this is to utilize a well-drafted Power of Attorney and Will that let everyone know who you would like to take over your accounts when the time comes.