Do you want to take a walk on the wild side?
Just add your adult child as a co-owner to your bank account.
Why Would You Add an Adult Child to Your Bank Account?
Suppose you live in Texas and you have two adult children: Jim and his younger brother, David. Jim has been helping you pay your bills and invest your money. You want him to have direct access to your bank account to make it easier for him to do that. You also want him to have money to pay for your funeral after you die.
You and Jim think that adding him as a co-owner to your bank account is the perfect solution. You do that, with the banker helpfully setting up the account as a “joint tenant with right of survivorship account.”
Bankers are so helpful when they give legal advice, aren’t they? Let’s look at the result.
Realities of a Joint Account With Your Adult Child
Filing a Gift Tax Return
Because it is set up as a “survivorship account,” you just made a present gift to Jim. That may be fine if there was only $10,000 in the account, but if there was instead $50,000 then you probably need to check with your CPA about filing a gift tax return.
Accidental Overdraft
Now suppose that you make an accounting error and accidentally overdraft the joint account. Who is on the hook for the overdraft? You and Jim. Jim will not be happy.
Tax Implications
Let’s forget about Jim’s happiness and worry about yours. What happens if Jim forgets to pay his taxes, and the IRS places a lien on his accounts? The lien will include your joint account, of course.
Divorce Impacts
Now suppose Jim gets a divorce. He will have to disclose that he is an owner of the joint account. Could the funds in the account be in jeopardy? Yes.
You may be able to successfully fend off the IRS and Jim’s horrid spouse, but it will cost you money and time. You will not be happy.
Estate or Inheritance Tax
What if Jim dies before you do? You would receive the funds, but if Jim lives in another state, then his share of the account may be subject to an estate or inheritance tax imposed by that state.
Discrepancies in Inheritance
What if your funeral only costs $10,000, but there is $200,000 in the bank account when you die? Jim gets the entire amount. Your other son, David, has no claim to the funds. If Jim wants to give some of the money to David, then it is a gift and Jim’s CPA will have something to say about that.
Money Used Incorrectly
What if, after you die, Jim doesn’t want to use any of the money in the bank account for your funeral? Well, legally the money is his. He does not have to spend it on your funeral.
Right of Survivorship
What if you did not check the box on the account agreement for the right of survivorship? The Texas Supreme Court has an opinion right on point. If the only funds in the account came from you then, upon your death, Jim does not get ownership of the bank account.
Alternatives to Adding an Adult Child to Your Bank Account
What is a good alternative to adding Jim as an account owner?
- You could add him as an account signatory so he can access your account during your lifetime to help pay your bills.
- You could prepay for your funeral.
- You could set up a trust, name Jim as a trustee, and he could pay your bills and pay for your funeral from the trust funds.
Hammerle Finley is Here to Help You Explore Your Options
You have choices, and not all of them are wild. If you or a loved one need assistance with estate planning and finding the right choice for your future, schedule a consultation with our team of expert attorneys.
Virginia Hammerle is an accredited estate planner and represents clients in estate planning, probate, guardianship, and contested litigation. She may be reached at legaltalktexas@hammerle.com. This blog contains general information only and does not constitute legal advice.
