You could create unwitting problems for yourself and your adult child by adding his or her name to your bank account.
My colleague, **Attorney Danielle Van Ess, of DGVE Law in Hingham sums it up well: “While most parents who add their adult children do so out of trust and with love and gratitude in their hearts, there are many negative, unintended consequences that are all avoidable with some well-counseled financial and legal estate planning.”
Let’s look at some potential consequences:
- Estate Implication: Upon your death, jointly held accounts pass 100% to the joint account holder. If you have other children, they will not receive any portion of it. This may not be your intent. It does not matter what your will or trust says – titling of the account supersedes any will or trust provisions. I repeat: It does not matter what your will or trust says.
- Legal judgements against your child:If your child is involved in a car accident or other mishap and becomes involved in a lawsuit, subsequent monetary claims and judgements include the money in this account as part of the child’s assets. The entire amount could go to the wronged party.
- Shared Liability:If your child has any issues with a creditor and a judgement is levied against him, the entire bank account could be garnished, even though the parent is not involved in any way.
- Divorce:If your child divorces, the ex-spouse may be entitled to a portion of this jointly held account when the assets are divided.
- Gift tax: Placing someone who is not your spouse as a co-owner on a bank account, in the eyes of the IRS, is a gift of half to that person. If the amount is over $14,000 you are required to file a gift tax return.
- Trust and responsibility could go wrong: Your child can withdraw the entire amount at any time, use for any purpose, and is not required to pay it back.
Even though your situation may seem “simple”, it pays to consult with a qualified estate attorney/financial planner.
**My colleague, Attorney Danielle G. Van Ess, is hosting a free, interactive workshop on Tuesday, October 17, 2017 10-11am at her office at 61 South Street right in downtown Hingham Square. The topic is: Peace of Mind Estate Planning for Parents: What you need to know to protect your family, yourself, and your stuff.