A client asked me this question this week. As usual, the answer is “It depends.” Everyone’s legal, health and financial situation is a little different. Some factors it can depend on will be discussed below. But the first question is: What do you want to accomplish? What is the reason you are thinking about taking this step. There can be “good” reasons such as allowing access by a loved one to help with your bill paying if you have a health event. If you are in the hospital or rehabbing after a hospital stay it may be easier for your son or daughter to pay your bills. There can also be “bad” reasons such as an attempt to help a financially struggling adult child stay afloat, or a self-help attempt to pre-qualify for Medicaid. Bad reasons are easy to advise against, but even for good reasons there may be a better way to achieve the desired outcome.
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A lot depends on the family situation. Do you have more than one child? If so, you may have to choose between adding multiple names to your account or choosing one child to add. If you add several names to your account, you may be increasing the risk to your assets. Remember that each person you add becomes a co-owner. If that person has financial difficulties (bankruptcy, unpaid creditors) or family problems (divorce, child-support obligations) your funds may be imperiled. Each additional child you add to the account increases this risk. But if you designate one of your kids, you may seem to favor that child in the eyes of the others.
Your Health Situation
Are you still independent? Do you have a diagnosis (such as Parkinson’s or Alzheimer’s) which will likely lead to impairment in the future? If so, you might be tempted to add your child so that they can help with paying your bills when you can no longer manage your own finances. But if you still have legal capacity now, you can give this power in a safer and cleaner way by naming your child in a Durable Power of Attorney. By having your child act under a Power of Attorney it remains clear that your funds are yours, and not subject to his creditors. Furthermore, you only have to sign one document which will (or can) cover all of your financial accounts (if you choose to) such as bank accounts, insurances, annuities, and even retirement accounts or trusts you may have in place. This can be a lot easier than going to each bank or financial institution to sign new signature cards for each account.
You may also consider executing a trust, either revocable or irrevocable, and having one or several of your children act as trustees. (And if you have a revocable trust, you can act as your own trustee while you still have capacity, and nominate your successor trustees to act when you can no longer do so.) Again, you would be protecting your assets by setting up a legal structure to manage the funds now and in the future when you may no longer want to or be able to.
Your Finances
It can also depend on your financial situation. Some of our clients only have a single checking account, with maybe some insurance or an IRA on the side. Others have multiple checking accounts (especially if they are or were snow-birds), his and her retirement accounts, certificates of deposit (CDs) in many different banks, and brokerage accounts. Obviously the more accounts you have the harder it is to add your child and give meaningful control to help with finances.
Other Implications of Adding a Child’s Name
We always want to be cautious about unintended consequences. Since your child is a co-owner when you add her to your account, you may have made a gift for Medicaid or VA purposes. If you need nursing home level of care, or could qualify for VA assistance under Aid and Attendance, your gift may disqualify you or require a waiting period you could otherwise avoid.
Another unintended consequence is the effect on your estate plan. Each account you add a child to will go to that child when you die. If you hoped to leave your estate to all your kids equally, you will have to rely on the named child sharing to equalize things. And this might not be possible if he or she has creditors as discussed above. Or if you wanted a portion of your funds to go to a charity or another beneficiary, you may have effectively made that impossible.
Always consult with your attorney or tax advisor before making a decision such as adding your child’s name to your account(s). There may be better ways to achieve your goals, ways that can protect you and your child while still allowing them to help you when you need help. If you have questions about this, feel free to call our office at 239-434-8557 to discuss your situation.