11 reasons why you shouldn’t add your son or daughter as a joint owner on your bank account or add them to the deed to your home?

Jackie Bedard
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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 ‘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:

  1. If your child makes any withdrawals from the bank account in excess of $14,000, it may constitute a gift requiring the filing of a gift tax return with the IRS.
  2. If you add your child to your deed, it is considered a gift and a gift tax return must be filed with the IRS.
  3. Add a child to an investment account or real estate can result in unfavorable income tax consequences for your children upon your death.
  4. 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 your child's lawsuit!
  5. 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. 
  6. 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. 
  7. Upon your death, the account or real estate will pass automatically to the child that owned it jointly with you.  If you have other children, chances are they’re going to be pretty upset!  For example, let’s assume you have three children and your will or trust says that your estate will be divided equally between them.  One of your children lives in town and the other two live out of town. For convenience, you decide to add your in-town child to your accounts.  As a result, upon your death, the entire bank account will pass to the in-town child and he or she is not in any way obligated to share it with his or her siblings (and in fact, might be required to file a gift tax return if they do share it!).
  8. Perhaps you and your child are in a car accident together and both left disabled.  If your child is married, then it is likely that his or her spouse has power of attorney—which means your son-in-law or daughter-in-law now has full control and access to your bank account or real estate!
  9. A few years go by and you decide you want to sell your home, perhaps to downsize or move to an independent living community.  You cannot sell your house without your child’s signature.
  10. At some point, you may need nursing home care and want to file a Medicaid application for assistance in paying the hefty costs of nursing home care.  Guess what?  Medicaid is going to penalize you for making the bank account or real estate joint—they view it as a transfer and a penalty will be imposed.
  11. If your children don’t get along, and you name one of them joint on your bank accounts and real estate, the other child may feel slighted and allege elder financial abuse filing a lengthy and expensive against his or her sibling.

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 such as a Durable Financial Power of Attorney and the use of a Revocable Living Trust that includes detailed disability instructions.

To learn more about common estate planning issues, check out our free guide, Estate Planning Pitfalls: The 12 Most Common Threats to Your Estate & Your Family's Future, or to discuss your estate planning concerns, please call our office at 919-443-3035 or use our contact form.