Adding an adult child as a joint owner of a parent’s bank account seems like a simple and straightforward solution that allows the child to help care for mom or dad without the expense or hassle of preparing powers of attorney or other legal documents. Naming a child as a joint owner also allows the account to avoid probate at the death of the parent. However, there are many dangers that account owners, and the children, may not realize.
Most bank accounts are set up so that once a child is added as a co-owner to a parent’s bank account, the child becomes a legal owner of the assets in the account. Even though in the minds of both the parent and the child, the money “belongs” to mom or dad, the reality is that from a legal perspective, the money actually belongs to both the child and the parent. This means that the money in that account can be spent by the child for any reason, not just for caring for mom or dad. The money in the account also becomes reachable by any creditors of the child. Even if the child is a responsible adult, unforeseen circumstances, such as a car accident, could cause mom or dad’s bank account to be wiped out due to the child’s liabilities. One of the most common creditors is a divorcing spouse, and the money in the joint account could be counted as an asset of the child in a divorce.
Another common misconception is that the parent does not need a Will or Trust because the child on the jointly-owned account knows after the parent dies, the money is to be split among all of the child’s siblings. Now, there are times when this strategy could work; however, legally the money transfers 100% to the child named as a co-owner on the account. That child has no legal obligation to share the assets of the account with other siblings. Frequently, there is conflict among siblings about whether mom or dad offered the co-owner child a larger share, or all, of the account to compensate that child for caring for the parent during their last years.
The intentions behind adding an adult child to mom or dad’s accounts are good – everyone wants a simple solution that is easy to manage. Even though I do not recommend adding a child to a parent’s bank account, there are other ways to address the issues, and they do not need to be complicated or expensive. At the most basic level, the child could be added as agent, or signer, on mom or dad’s accounts by filling out a form at the bank. This would allow the child to access the money for mom or dad’s benefit only. The money would not legally belong to the child, and would not be reachable by the child’s creditors. A beneficiary designation form can also be filled out at the bank which would allow the assets in the account to avoid probate and pass to all the siblings automatically at mom or dad’s death.
Caring for family members can sometimes feel complicated, but taking these steps will allow the child to not only care for mom or dad, but also protect mom or dad’s money from unintended consequences that may arise from joint account ownership.