Do you want to take a walk on the wild side? Just add your adult child as a co-owner to your bank account.
Suppose you live in Texas and you have an adult child: Jim.
Jim has been helping you pay your bills. You want him to have direct access to your bank account to make it easier for him to do that.
You and Jim think that adding him as a co-owner to your bank account is the perfect solution. You do that, with the banker helpfully setting up the account as a “joint tenant with right of survivorship account.” (Bankers are so helpful when they give legal advice, aren’t they?)
Let’s look at the result.
Because it is set up as a “survivorship account,” you just made a present gift to Jim. That may be fine if there was only $10,000 in the account, but if there was instead $50,000, then you probably need to check with your CPA about filing a gift tax return.
Suppose you accidentally overdraft the joint account. Who is on the hook for the overdraft? You and Jim.
It is a two-way street. What happens if Jim forgets to pay his taxes, and the IRS places a lien on his accounts? The lien will include your joint account, of course.
Now suppose Jim gets a divorce. He will have to disclose that he is an owner in the joint account. Could the funds in the account be in jeopardy? Yes.
You may be able to successfully fend off the IRS and Jim’s horrid spouse, but it will cost you money and time.
What is a good alternative to adding Jim as an account owner? You could add him as an account signatory so he can access your account during your lifetime to help pay your bills. Or you could name him as your agent under a power of attorney, which would give him access to manage your account. If you want Jim to inherit the account when you die, then just name him a beneficiary.
You have choices, and not all of them are wild.
Attorney Virginia Hammerle is an attorney at Hammerle Finley Law Firm, a boutique law firm offering services in estate planning, probate, guardianship, business law, litigation and real estate. Contact her at (972) 436-9300. This article does not constitute as legal advice.
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