Many seniors have an adult child who functions as a caregiver. While an efficient caregiver relationship has many elements, one of the most important involves facilitating the ability of the care provider to purchase groceries, household goods, and other necessities. In many cases, an adult child functioning as a caregiver for a parent also will pay a parent’s bills. Frequently, elderly parents will facilitate access to funds to cover these expenses by adding their adult child’s name to the bank account. While this practice offers an appealing way to facilitate access to funds for the parent’s needs, elderly parents should weigh the benefits and disadvantages of this approach. In this blog, a Franklin County Ohio estate planning lawyer discusses the pros and cons of adding an adult child to your bank account as a signer.
Disadvantage of Adding an Adult Child to Your Bank Account
Exposure of Funds to Creditors: If the adult child struggles financially and falls behind on his or her bills, creditors might conduct an asset search to satisfy the debt. Because the adult child is a signer on the account, the account becomes an asset that can be the target of enforcement actions by your adult child’s debtor. Even if the only purpose adding the child as a signer is to enable spending on your behalf, the account will be considered jointly owned. The joint ownership status can allow creditors to levy against the funds in the account. After the levy has been enforced, the prospect of recovering even a portion of the funds becomes an uphill battle. The bottom line is that this tool of convenience can result in elderly parents losing every penny in their bank account.
Unlimited Access: Although the purpose of adding your adult child is merely to allow funds to be accessed for your needs, your loved one will become a joint owner of the funds with all of the accompanying rights and privileges. The adult child will have the ability to use some or all of the funds for his or her own purposes regardless of whether you have approved the expenditure. While parents understandably tend to trust their adult children, they must be aware that a joint ownership relationship permits the co-owner to withdraw some or all of the funds without notice to the other owner.
Risk of Judgment or Settlements in Lawsuits: While no one expects to be sued, a motor vehicle accident, slip and fall, or other accident can expose your adult child to a personal injury lawsuit. Any resulting judgment or settlement could be enforced by seizing the funds in your joint bank account. Again, the funds are vulnerable even if the adult child never accesses the account except to pay your bills and buy your groceries.
Exposure to Tax Liability: Because placing your adult child’s name on the account makes him or her a co-owner, the IRS might consider this act the equivalent of a gift that exposes your child to gift tax liability. There are a range of factors that will determine whether this approach creates an obligation to pay gift tax, so you should consider talking to a Columbus estate planning lawyer if you are considering placing your child on your bank account.
Benefits of Adding Your Loved One to Your Account
Convenience of Access to Funds: If you are considering adding your child as a joint owner of your bank account, the primary reason is probably the ease of access to funds for your needs. This benefit can certainly avoid headaches when access to funds must be obtained promptly to handle emergency expenditures. If your adult child is more or less handling all of your financial affairs, then this arrangement will facilitate writing checks, paying bills, and depositing checks.
Facilitating Transfer to Care Provider: Because you child is listed as a co-owner on the account, he or she will automatically become the owner of the funds if you should pass away. This approach to passing assets to your loved ones can be used for certain types of assets other than a bank account, such as insurance policies or real estate. However, this is not the best strategy in all situations, so you should seek legal advice before relying on this method to pass assets to your surviving loved ones.
If you have questions about structuring financial arrangements to cover caregiver services or other estate planning issues, we invite you to contact us to schedule a consultation. Our Columbus estate planning lawyers at Dawes Legal, LLC can offer assistance with specific estate planning documents or a comprehensive estate planning experience. We invite you to call us today 614-733-9999 for your free consultation.