Your Bank Account Should Not Be Linked to Your Child’s Name for Several Reasons

Even though it may be helpful to have someone else keep an eye on your bills while you’re away or sick, adding a child’s name to your bank account may not be worth the trouble. Doing so may have unintended consequences for both you and the child.

First of all, the money in your account could be diverted to unintended parties. As of 2015, if the account held anything over $14,000, you would have had to notify the IRS and possibly pay gift taxes. If the child divorces, is in debt or has a legal judgment against them, the account becomes available to the ex-spouse, creditors, or plaintiffs, just because the child’s name is on it.

Secondly, putting someone’s name – and a potential beneficiary’s name, at that – may frustrate the intentions of your will. Because your child’s name is on your account, they have “rights of survivorship,” which means that the entire account goes to them. If you wanted your assets divided equally between your children, for example, then whichever has their name on the account will now get more than the other.

Third, your child could lose eligibility for public funds, and your grandchildren could lose the opportunity for scholarships and financial aid. If your child ever needs public assistance, such as Medicaid, the account will be counted as an available resource and may make them ineligible. Likewise regarding your grandchildren; they may not be able to get student aid if the account on which their parent’s name is on inflates their parent’s assets.

Finally, there are a few other potential consequences. If your child dies before you, then the money in the account (if held as tenants in common) could be part of their estate and would be distributed under the terms of their will, rather than yours. Or if your child spends the money in the account without your permission, because their name is on the account they would not be required to pay you back. Either way, the money in your account would have ended up out of your control.

Even though adding a child’s name to your bank account seems harmless, it can backfire, and lead to consequences for both you and your child.  We can help you find ways to protect your bank accounts during your lifetime, and pass money on to your children without the threat of creditors reaching that money. We hope you found this article helpful. Contact our Auburn office at 260-925-3738 to create a plan that harmonizes its moving parts, so the gears will work together and you will leave the legacy you intended.