Ask the Adviser: Should I add my child as joint owner of my bank account?

For many of us, it may become increas­ingly difficult to stay on top of our finances as we age. Whether it’s paying bills on time, managing invest­ments, or reviewing state­ments for fraud­ulent trans­ac­tions, it’s likely that, at some point, we’ll all come to realize we need a little help.

One simple solution is to set up a joint bank account with a trusted adult child. This enables them to help relieve the burden of financial management—to pay bills, monitor trans­ac­tions, and manage the account for you. However, this decision can bring about unintended conse­quences, that include putting your assets at additional risk and compli­cating your estate plan.

Here’s what to consider before opening a joint account with an adult child.

Liability

The money in the account will be just as much theirs as it is yours, which means opening yourself up to the liability of your child’s personal circum­stances. While the risk of messy circum­stances may be low for your family, issues can arise if your child becomes subject to legal action in a lawsuit or divorce. Your assets could also be subject to a claim by your child’s creditors.

Estate Planning

The assets in a joint account automat­i­cally pass to the surviving joint owner—in this case, the adult child on the account. Even if all your accounts with named benefi­ciaries (retirement plans, annuities, life insurance, etc.) and your will are struc­tured to provide an equal distri­b­ution to your children, the jointly held account will pass to one child. This could lead to an imbal­anced inher­i­tance and potential conflict between children.

Inflexibility

Once you add a joint owner to the account, it’s difficult to undo. If it turns out your child isn’t keeping track of your finances (or worse, they’ve started using money for personal expenses), it won’t be easy to remove them from the account without their autho­rization. If you’re already dealing with a strained relationship with your child, this could create additional headaches.

So, is there a better way? Thank­fully, we believe there is—we typically recommend drafting a well-designed power of attorney document, which gives a trusted agent the ability to manage your accounts without any of these issues.

First, the account remains in your name, so you won’t expose your assets to further liability. Secondly, you can include the account in your asset distri­b­ution plan, either as expressed in your will or through

the benefi­ciaries named on the account. Lastly, through a power of attorney, you can unilat­erally revoke authority granted to a child at any point if you decide you no longer want them to manage your accounts. The power of attorney language can also limit the actions your agent can perform.

If you find yourself looking for extra help with your finances, we suggest resisting a joint bank account and consulting with a trusted estate attorney to ensure you have up-to-date powers of attorney. These documents grant authority to a trusted individual that should always act in your best interest and avoid the compli­ca­tions of a joint bank account.

Wondering if you should add your child to the deed of your home? We cover that question here.