A friend of mine recently retired from her family law practice after 40 years. I asked her what her most consistently frustrating estate planning experience was, and she quickly answered:

“When bank tellers recommend to seniors that they should add children to their bank accounts.”

She believes the tellers are well-intentioned. It is most likely the easiest path for the bank to help an adult child deal with an aging parent and their daily financial needs. But, it is so frustrating for the attorney who has just helped their client create a deeply deliberated estate plan. By adding a child to a bank account as a joint owner, they’ve essentially created a “mini-estate plan” that may be different from what the client initially intended. What’s unfortunate is that the ramifications are often not realized until the parent (or senior citizen) either no longer has the mental capacity to speak for themselves or they have passed away.

Another reason not to add your child as a joint owner

One of the unintended consequences of adding your child to your accounts is that you have instantly granted your child’s creditors access to YOUR money! Depending on state laws protecting seniors, you may have increased your risk for financial abuse or exploitation. If your child should go through a divorce, your former son- or daughter-in-law may try to pull the account into their settlement.

Gift Taxation

By adding your adult child to your bank account, you have essentially gifted them a portion of the account value, which may then trigger gift taxes or at least require forms to be filed with the IRS. In 2024, an individual can give up to $18,000 to another person without paying gift taxes or notifying the IRS; anything above that is considered a taxable gift. You’ll be required to file IRS Form 709 with your tax return, even if you don’t actually owe taxes on the gift (due to the lifetime gift tax exemption, but that probably needs its own blog post!)

So what is the better solution?

Name your adult child as your power of attorney in your estate plan and payable-on-death (transfer-on-death) beneficiary on your bank or brokerage accounts. This way they’ll have access to those accounts if needed during your lifetime, while keeping your assets protected from their potential creditors. And most importantly, you will not undo the carefully crafted estate plan you created with your attorney.