JOINT BANK ACCOUNTS WITH KIDS

I get the recurring question from clients from time to time about joint bank accounts with their kids. An elderly mother or father wants to add their child’s name to one or more of their bank accounts. In simple terms, the logic makes sense, as most parents want to assure that their bills, mortgages, insurances or even funerals get paid and that their children have access to their funds to pay for it. Yet most elderly clients and children don’t realize the risk that this small transaction creates.

• • Each person on a joint bank account is legally considered a full owner when it comes to withdrawing money from the account. Therefore, the risk of a child withdrawing money, borrowing money or accidentally losing the checkbook/debit card for their parent’s bank account opens the door to the possibility of losing the elderly parent’s savings through theft, stolen identity or bank account access.

• • Once a child is added on a joint bank account, it becomes an asset for both parties. So if a situation arises where the child has a creditor win a judgment against him or her, that creditor could garnish the entire bank account, regardless of the parent’s involvement in the creditor claim, possibly resulting in the loss of the account funds.

• • Any assets in this assumed bank account are deemed as owned property by the parent and the child. What if the child’s spouse files for divorce? That divorcing spouse could be entitled to a portion of the joint bank account funds. Or what if that child runs a stop sign and hits another car or person or damages someone’s property? Any lawsuit claim/judgment settlement for money will include this account as part of the child’s assets.

• • Joint accounts or any asset registered jointly with rights of survivorship bypass the will of a deceased person. So in this case, the will does not impact the money in joint bank accounts. This might not be an issue if the child is the only beneficiary of the parent’s estate. If not, it can create a major feud among other beneficiaries, as the dividing process is not that easy after the fact.

• There are also issues of concern for Medicaid recipients.