Should I Add My Adult Child as Co-Owner on My Bank Account?

probate attorney in Orange County

Making your adult child co-owner of your bank account seems like a sensible thing to do. After all, they're responsible and you can trust them to take care of your financial affairs and decisions should you become incapacitated. It's also a good way to avoid probate. However, when you talk to a probate attorney in Orange County, you'll find the decision has more risks than benefits.

Co-Ownership of Bank Accounts: What it Means for You and Your Adult Child

Co-ownership is attractive to many elderly parents who are single. There's great relief in knowing that, if you are incapacitated, your adult child has the financial power to pay bills and manage the joint account.

Many parents don't realize that joint account holders have the right to use" their" account as they wish. They can pay their own bills and expenses and you have no authority to stop them.

For example, in a month's time, you're having hip replacement surgery and you've designated some of the money to pay the medical expenses. Unfortunately, money is missing every time you check the account.

Despite repeatedly talking to your child, they continue to be compulsive spenders and you have no legal means to stop them. 

The Pros and Cons of Adding an Adult Child as a Co-Owner on Your Bank Account

There are negative unintended consequences, yes, but there are some advantages to joint bank account ownership.

No probate or estate administration tax.It's easy to add a joint holder.The adult child assists in account management and ensures the parent's finances are protected from scammers and their own poor financial decisions.Funds are immediately accessible to cover funeral and other death-related costs.Use the account without permissionCo-ownership trumps a will. If your will states the proceeds must be split between your three children, but one of them is the joint owner, all proceeds go to her.
As the sole owner, she's under no legal obligation to share the proceeds with her siblings.Creditors can be paid from the accountEx-spouses are entitled to a share of the money because it's listed as a marital asset.It's exceptionally difficult to remove a co-owner.Co-ownership could render either party ineligible for certain benefits, for example, disability benefits.

Risks of Co-Ownership: Protecting Yourself from Financial Harm

Co-owning a bank account with an adult child exposes both of you to risks as you each take on the financial obligations of the other. 

One way to keep on top of spending is to set up mobile notifications so both of you are aware of the other's transactions.

When it looks like spending is getting out of hand, you can arrange a meeting to address the problem. It's a good idea to get an estate attorney who specializes in wills and trusts involved. They'll act as mediators and ensure that the outcome is recorded in a legal document.

Liability Concerns: What Happens if Your Adult Child Owes Money?

When you make an adult child a co-owner of your bank account, you share everything. They automatically have unrestricted access to money. It also means that you take on their debt and financial obligations, such as child support.

Your co-owners creditors are well within their rights to claim payment from the co-owned account. Your child's ex-spouse is also entitled to claim child support from the account if your child has fallen behind on payments.

Estate Planning Implications: How Co-Ownership Affects Inheritance

A co-owned bank account is separate from your estate and while this avoids probate, it also means that it isn't included in your will As a result, the entire bank account is transferred to the co-owner. Often, the co-owner will share the proceedings with their siblings. But there are others who keep the full amount. It's accidental disinheritance.

You could have a meeting with all of your children to discuss options. For example, the co-owner retains the bank account but doesn't inherit any other part of your estate to the same value as the cash in the account. After that, the remaining estate is shared equally among all your children.

The co-owner might prefer to inherit items from the estate and will negotiate shares in the account. Whichever alternative your children choose, make sure you have an Orange County estate planning attorney draw up agreement documents that are beyond legal challenges.

Talking to Your Adult Child: How to Have a Conversation About Money Matters

Your financial planning is one of the most important subjects to discuss with your kids about. They must know if you have enough for a comfortable and lengthy retirement, health insurance, and an emergency fund.

You should discuss your estate and what you mean to do with it when you die. For instance, 70% is to be shared equally between them, 10% is to go to an animal shelter, 10% to nieces and nephews, and 10% is to be held in trust for 10 years, after which it is to be shared among the children.

Now is the time for your children to ask questions about your estate plan and bring up their concerns. It's also the time to emphasize the importance of honoring your wishes. It may be helpful to have an attorney who specializes in wills and trusts at the meeting.

Why Adding an Adult Child as a Co-Owner on Your Bank Account is Not a Good Idea

The points discussed show that the disadvantages heavily outweigh the potential advantages of making an adult child a co-owner of your bank account. You risk losing everything when your child's creditors come knocking or they're involved in a serious traffic collision and are severely injured. The money in your co-owned bank account may be siphoned off to pay for their care.

You could become embroiled in complex legal matters, such as your child's messy divorce settlement. 

Alternatives to Co-Ownership - Parker Law Offices Can Help You Decide!

You can enjoy the benefits of co-owned accounts without the risks by giving your child power of attorney (POA). This enables them to manage your finances and make financial decisions on your behalf. 

Your lawyer will look into the viability of Transfer on Death, which enables you to name your child a transfer-on-death beneficiary. The account is immediately turned over to your child, which avoids probate.

Our Orange County estate planning attorneys will explain how a revocable living trust affects the probate process. Contact us via our online form or call us at 949-867-4818 at Parker Law Offices to book a consultation with our team!

Maria Parker assists her clients plan for their end of life health care wishes and the ultimate distribution of their wealth after death. She personally experienced the importance of planning at the time her father passed away.

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