Is It a Good Idea to Add My Child’s Name to My Bank Account?
When it comes to estate planning, many Florida residents look for shortcuts. And while there are certain legal tools you can use to minimize the burden of the probate process for your heirs, you need to think carefully before taking steps that might actually make things worse for you while you are still alive. For example, some folks think it’s easier just to add their adult child to their checking or savings account as a co-owner. So if the parent dies, the child has immediate access to those funds, without the need for the account to go through probate.
In theory, this sounds simple enough. But in practice, there are a number of unintended consequences that may arise from adding a child to a bank account. Here are just a few scenarios to consider:
- The Child’s Creditors Come After Your Money.
Even if all of the money deposited into a joint account comes from you, if your child is added as an owner, those funds may be subject to her creditor claims. In other words, let’s say you add your daughter to your checking account. She never deposits or withdraws any money. But she owes $5,000 on her credit card. The credit card company could obtain a civil judgment against your daughter and seek to collect against “your” account–which legally speaking is co-owned by your delinquent daughter.
- Your Child Takes Your Money Without Telling You.
Now let’s change the above scenario slightly. Instead of waiting for the credit card company to come after her, your daughter withdraws $5,000 from your joint account without telling you so she can pay her bill. If you have a problem with that, too bad–as a legal co-owner she has every right to make withdrawals without your advance knowledge or consent.
- You May Owe Additional Taxes on Any Funds Your Child Withdraws.
Suppose you have no problem allowing your child to use the money in a joint account for their own needs. That’s certainly your right. But you still need to be aware of potential tax consequences. In some cases the IRS may classify a child’s withdrawal from a joint account to be a taxable “gift” if it exceeds the federal gift tax exclusion, which is currently $15,000 per year. So if your son uses $50,000 from a joint account to buy a new car, you may find yourself owing tax on his withdrawal.
- You May Lose Your Medicaid Eligibility.
Medicaid is a means-tested program that helps low-income individuals pay for nursing home care. Florida law imposes a “lookback period” of five years when determining Medicaid eligibility. This means that you can be penalized if you named a joint account holder in the five years preceding your Medicaid application. Regardless of your actual intent, the State of Florida looks at such acts as an attempt to “give away” your assets to evade Medicaid income and asset restrictions.
In short, naming your child as a joint account holder may not be the best move for you. An experienced Fort Myers estate planning attorney can explain things in more detail and go over all of your options. Contact the Kuhn Law Firm, P.A., at 239-333-4529 to schedule a free consultation with a member of our legal team today.