Naming an adult child on your account could be costly.
Are you a senior?
I understand what you are thinking.
You are wondering what would happen to your bank account if something were to happen to you, right?
Could you avoid probate simply by adding your adult child as a joint owner?
Yes.
You could.
According to a recent Kiplinger article titled “The Trouble with Joint Bank Accounts 'Just in Case',” this may not be the best decision.
What issues might you face?
If you want the account to pass in equal shares to all of your children, it will not.
Nope, the designation on the account will take precedent and transfer the account automatically to that joint owner child.
This could cause some family rancor, if that child does not share.
Another issue involves federal gift taxes.
You could be creating a gift tax issue if the account is larger than $15,000.
In fact, you could be creating an issue for your own taxes.
How?
Let us say your child is named on a $500,000 account.
This child then dies before you do.
Because your child is a joint owner of the account, it could be included in his or her taxable estate.
Yikes!
Because of you are a parent and not a spouse, you could be incurring an inheritance bill on your own money depending on where you live.
(Note: this "inheritance tax" concern is not a concern in Kansas or Missouri.)
Are their alternatives to naming a child as a joint owner of an account?
Yes.
One option most banks provide is a "Pay on Death" or a "Transfer on Death" account.
This allows for the account to pass to the beneficiary(ies) upon your death.
No tax is triggered if your beneficiary dies before you because he or she has no ownership until you die.
This beneficiary designation will allow the account to avoid distribution through probate.
What about retirement accounts? How do they work?
What if you need to access and use your retirement accounts but are incapacitated?
How will your loved ones have access to pay your bills and other expenses?
There can be only one owner of a retirement account.
This means naming a child as a joint owner is not an option.
Instead, you will need a financial durable power of attorney.
This allows you to designate him as an agent on the account to make financial decisions on your behalf.
This should be created by an experienced estate planning attorney.
You will also want to review the durable power of attorney with your bank or other entity before its use is required.
This will help things go smoothly should it become necessary.
Planning now will save you and your loved ones stress later.
Reference: Kiplinger (November 14, 2018) “The Trouble with Joint Bank Accounts 'Just in Case'”
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