Many people believe that an ‘easy’ way to avoid probate or to enable their children to assist them as they get older is to add their child to their bank accounts or even to the deed to their home. In our office, this is what we call the ‘coffee shop’ and ‘beauty parlor’ law. You heard from a friend, who’s neighbor’s non-lawyer brother-in-law said it was a good idea. And while occasionally it might work for some, there are many reasons why this approach is NOT recommended:
- The bank account or real estate is now considered owned jointly by that person and as a result, may be at risk if your child is sued, divorces, or files for bankruptcy. Recently, a colleague of mine shared a story with me about a client that added her daughter to the deed to her home. Her daughter later ran into some health issues, ultimately lost her job and wound up filing for bankruptcy. During the daughter’s bankruptcy proceeding, her mother lost her house because it was deeded in the daughter’s name and therefore was subject to the bankruptcy proceeding. Similarly, let’s say that your child causes a fatal car accident and is being sued. Guess what? If titled jointly, your bank account or real estate might be at risk to the lawsuit!
- Once a child is added to your bank account, he or she can withdraw some or all of the account or can try to sell or mortgage his or her share of the house. Money has a funny influence on people and unfortunately, there are many stories and examples where children have wiped out their parents savings.
- Your child falls on hard times—perhaps a job loss, health crisis, addiction, or some other jeopardy. And while they may never have intended do, sometimes life events happen that might just make this too tempting and the next thing you know, they’ve convinced themselves that you “would have wanted to help them out and won’t mind if they dip in the account a little bit”…and a little more… and a little bit more, until there’s nothing left.
The bottom line is that there are much more effective estate planning tools that can help us avoid or limit your exposure to these situations.
Read even more reasons why it's not a good idea to add children or family members as joint owners on your assets or accounts.