Although it can be convenient to have your child named on your bank account to pay bills when you’re sick or away, adding a child’s name to a bank account may have unintended consequences for both you and the child.
For example, as of 2015, if the account held anything over $14,000, you would have had to notify the IRS and possibly pay gift taxes.
Or the money in your account could be diverted to unintended parties. If the child divorces, is in debt or has a legal judgment against them, the account becomes available to the ex-spouse, creditors, or plaintiffs, just because the child’s name is on it.
Also, putting someone’s name – and a potential beneficiary’s name, at that – may frustrate the intentions of your will. Because your child’s name is on your account, they have “rights of survivorship,” which means that the entire account goes to them. If you wanted your assets divided equally between your children, for example, then whichever has their name on the account will now get more than the others.
Your child could also lose eligibility for public funds, and your grandchildren could lose the opportunity for scholarships and financial aid. If your child ever needs public assistance, such as Medicaid, the account will be counted as an available resource and may make them ineligible. Likewise regarding your grandchildren; they may not be able to get student aid if the account which their parent's name is on inflates their parent's assets.
If your child dies before you, then the money in the account (if held as tenants in common) could be part of their estate and would be distributed under the terms of their will, rather than yours. Or if your child spends the money in the account without your permission, because their name is on the account they would not be required to pay you back. Either way, the money in your account will be out of your control.
Even though adding a child’s name to your bank account seems harmless, it can backfire, and lead to consequences for both you and your child. We can help you find ways to protect your bank accounts during your lifetime, and pass money on to your children without the threat of creditors reaching that money.
We hope you found this article helpful. If you have questions or would like to discuss a personal legal matter, don’t hesitate to reach out. Please contact our office at 1 (941) 441-9193.
The information on this website is for education purposes only and is not, nor is it intended to be, legal advice. An attorney consultation is necessary for you to receive advice regarding your particular situation.