As our loved ones age, they may need increasingly more help meeting their daily needs. They may begin to rely on children and other relatives to offer care, complete household chores, provide transportation and even pay bills. In these situations, it may seem to make things easier for both sides to name an adult child as the co-owner of a joint bank account with an aging parent. Though it does make funds more easily available to the child to take care of the parent, it is accompanied with a few important and usually unforeseen complications.
Complications of Naming a Child on a Joint Bank Account
Most families assume that sharing a bank account with an adult child is safe. The child can access the money to pay bills or take care of the parent when they cannot do so any longer. However, there are a few common problems that can arise, including:
- Arguments among children. When a parent has more than one child, this is especially dangerous. When a person adds a co-owner to a bank account, the money in the account is legally the property of both parties. Upon the death of one person, the funds automatically transfer to the other person. This would bypass a will and can cause strife between siblings if the other siblings feel the named sibling is not being fair with the money.
- Financial abuse. As previously stated, once a person is named on a joint account, he has a legal right to the money in the account. He may withdraw funds any time he wants, which can be a strong temptation and can lead to the child taking advantage of the parent through the bank account.
- Opens the funds to creditors. Once a child is named on a joint account, it is considered an asset to the child as well as the parent. This can open the funds up to claims from creditors, even though the money was earned by the parent who has no involvement in the credit dispute.
- Gift tax issues. In some cases, when the parent dies and the money is transferred solely to the child, it can be considered a gift. As such, it would be subject to a gift tax.
Alternatives to Joint Bank Accounts
Rather than add an adult as a full co-owner of a joint bank account, aging parents can take other, less risky steps to make funds more readily available for their care. Parents can give a child signatory powers, which would allow a child to use the account much like an employee would use a business account. Other options exist as well, such as using durable power of attorney or setting up a payable on death account. A skilled estate attorney can help a family assess their unique needs and determine the best way to move forward.
If you and your family are ready to get started in planning for the future and protecting your family’s assets, the experienced estate planning lawyers at the Tapella & Eberspacher Law Firm can help. Take a moment to fill out our online contact form for a prompt response from a member of our team.