As people get older, they may consider adding their child to their bank account or the title to their property. Giving your child direct access to your bank account can simplify bill paying if your child handles those chores for you. It is also a common misconception that adding your child to your accounts or property deed protects these assets from creditors, such as Medicaid, after you pass away.

There are potential pros and cons to adding your child to your accounts or deed to your home. Before making significant changes to your accounts or property deeds, it is a good idea to talk with your Katzner Law Group estate attorney.

The Benefits of Adding a Child to An Account or Deed

If you add your child to your bank account or the title of your property, they can easily access your funds to pay your bills. This can be especially reassuring if you become ill or incapacitated.

Another potential advantage of adding your child to your accounts or deeds is the ability to avoid probate. If your property is jointly held with your child with rights of survivorship, the property will automatically be passed to your child without going through the probate process. While your child is a joint owner of the property, they can also handle any property concerns, such as paying taxes, insurance, and mortgage payments, if you become ill or incapacitated. Learning the idiosyncrasies of a home can make it easier to manage when they are sole owners of the property.

The Drawbacks to Adding a Child to an Account or Deed

When you add another person to your account, whether a child or someone else, they have the same access to the account as you do. They can withdraw and use your funds without your permission. While that may be painful to consider, it is essential that you work through that possibility.

If your child faces a lawsuit or bankruptcy, creditors can legally seize funds from your account to settle your child’s debts. Creditors can place liens on your property, and in the worst-case scenario, they can force a foreclosure. If your child divorces, your accounts and property may become part of the marital estate, increasing complexity when the couple divides their assets.

Adding your child as co-owner of your property during your lifetime does not necessarily protect it from your creditors. For example, Medicaid has a look-back period, during which they scrutinize any property transfers or gifts that were made below market value.

If you run into financial difficulties and want to sell or refinance your home, you will need permission from your child, who is the co-owner of the property.

Another consideration is taxes and other financial implications of gifting property or accounts to your child during your lifetime. Putting your home in joint tenancy is viewed as a taxable gift by the Internal Revenue Service. If you exceed the yearly gift tax allowance, you will need to file a gift tax return.

If you gift your home to your child during your lifetime, they assume your cost basis. If they sell the property, they may need to pay capital gains taxes on the appreciation over your original purchase price. On the other hand, if your child receives your home as a gift at death, the value of the property steps up in basis to its current market value, reducing the likelihood that they will need to pay capital gains taxes.

If you have more than one child and plan for them to have an equal share of the account or property, they may not. Upon your death, the funds and property will be passed directly to the child, who is named as co-owner. This can result in disputes that may lead to lengthy and expensive legal battles.

Alternatives to Adding Your Child to Your Account or Deed

If it is important to you that your child has access to your funds to pay your bills, consider setting up a separate account that you co-own with them. Transfer enough money into the account on a monthly or yearly basis to cover your expected expenses. This can limit your liability if your child runs into financial difficulties.

Another option is to use a power of attorney to designate your child as your agent to act on your behalf in financial or legal matters if you become ill or incapacitated.

Instead of naming your child as co-owner on the deed of your property, consider transferring ownership of your property to a revocable or irrevocable trust. A revocable trust continues to give you full control of the assets in the trust and avoid probate without exposing your property and assets to your child’s creditors. With an irrevocable trust, you transfer ownership of your accounts and property to the trust and, therefore, no longer own them. However, an irrevocable trust provides additional creditor protections and potential tax advantages.

Your Katzner Law Group estate planning attorney can help you consider all your options and develop a plan that meets your needs. We have extensive experience in estate planning.

You can schedule a call with us or reach out to us directly at 855.631.3457 to learn more about how best to plan today to protect those most important to you.