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Adding a Child to a Bank Account? Think Twice

For many local residents, visiting a San Diego estate planning attorney seems unnecessary. After all,
many seniors have loving, supportive families and a desire to split everything evenly. Aren’t there easier ways to take care of inheritance and long-term care issues than visiting a lawyer?

One of the most common shortcuts involves adding an adult child to a bank account. The idea is that the child can help with financial issues in case something happens to the older parent. While this is always done with good intentions, there are many pitfalls to this approach which many do not consider until it is too late. A few of the more common problems include…

-Creditors: If a child is facing challenges by any creditors for overdue bills, back taxes, divorce payments, and other debts, then the creditors may try to go after your account. The probate code tries to allocate contributions to the joint bank account so that only money put in by the child would be at risk. But, no matter what, a costly legal battle might be needed to protect those funds. It is best to avoid this risk altogether.

-Uneven inheritance: The terms of a will can be frustrated by a joint account. For example, many parents wish to have all their assets split evenly between their children. However, when one owner of a joint account dies, the surviving owner automatically receives the full balance. The terms of a will or intestate rules would not apply to those funds. This means that the children not named in the account could go without their share if the child who was on the account decides to keep all of the funds
-Financial abuse: Unfortunately, elder financial exploitation is a surprisingly common problem. Some federal estimates suggest that 30 to 40% of all seniors are victims of some form of financial abuse.
Obviously, no one expects a trusted relative to take advantage of a situation. Yet, with a joint bank account both individuals have access to the entirety of the account, regardless of what they individually put into it. If so inclined, a child could literally wipe out the entire balance. Avoiding even the smallest chance of misuse is prudent.

-Tax concerns: Sometimes adding a child to an account may be construed as a gift for tax purposes. This may lead to a gift tax return needing to be filed. While the tax itself may be avoided under certain circumstances, dealing with the issue is complex and should be avoided.

Adding a child to a bank account seems like a simple step to provide extra protection for an aging parent.
But it is often much more troublesome than helpful. Far better tools exist to ensure that inheritances are respected and that help is available in case a senior needs support down the road. For example, a simple trust can be created which avoids all of the pitfalls mentioned above while still allowing a child to take over in the event of some disability.

To learn more about creating a trust, please get in touch with our San Diego estate planning lawyer.

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