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Owning A Joint Checking Account With Your Child: A Road to Responsibility or A Road to Disaster?

Thursday, September 22, 2016

It is imperative that you weigh the pros and cons before opening a joint account with your child. Particularly, you must analyze your situation and your reasons for doing so. You will find that for many of these reasons there may be other options that do not change ownership but still carry out your goals and wishes.

Pros of Having a Joint Checking Account

1. Convenience

Your child can assist you with paying bills and looking out for your finances should you need assistance. In addition, for parents with a minor child, a joint account allows you to closely monitor your child’s spending and teach them how to manage finances.

2. Avoid probate

For many, the primary concern is having money that is readily available after death. Probate delays the ability to access your account immediately. However, the accounts could be made Transferable on Death or Paid on Death, which means that the account will automatically be transferred to the named beneficiary or paid to the named beneficiary. This is an attractive alternative for parents who have more than one child because the funds will be divided amongst all of your children without any legal delay of the probate administration process.

3. Build Trust

Having a joint account with your child can help build trust. It can give you both ease in knowing the other person is responsible with managing money.

Cons of Having a Joint Checking Account

1. Unfettered Access

As a joint owner, your child can withdraw your entire account balance at any time, for his own use, and he is not required to pay it back (at least without a court order). The only time you should ever open a joint account with someone is when you have absolute trust that they won’t take advantage of you. An irresponsible child could just wait until you make a big deposit and withdraw all of the money and close the account.

2. Account is Subject to Creditors

When you add your child to your bank account, the money in the account is considered an asset of you both. Thus, you are at risk of taking on your child’s personal liabilities. For instance, your child may have issues with a creditor and a judgment may be levied against him or your child files bankruptcy, now the joint account could be garnished or subject to scrutiny.

3. Gift Tax Issues

When a joint account is held with someone other than a spouse, there is a risk that you may be subject to gift tax. According to the IRS, you can give up to $14,000, per person, per year, to a person (other than your spouse) without having to file a gift tax return. Therefore, if you open a joint account with your child and your child withdraws money for his own benefit, you have made a gift to that child for the amount withdrawn that is subject to the filing of a gift tax return.

4. Spouse’s Access

If you and your child are injured and you are both left disabled but your child’s spouse has power of attorney, then your son-in-law or daughter-in-law now has access and control to the joint account. In addition, if your child is separated from his spouse, his spouse is now entitled to a portion of this jointly held bank account when their assets are divided up during the divorce.

5. Estate Implications

If your child is a joint owner of this account and it was your intention to leave the money in this account to all of your children equally when you pass away, your wish will not be followed. The title of the account triumphs your Last Will and Testament. If the account is held jointly with rights of survivorship, the funds in this account will pass directly to the surviving joint owner—your one child, not equally amongst all of your children.

6. Sibling Rivalry

If you have more than one child, the addition of one child as a joint owner on your bank account may cause the other child or children to feel slighted and elder financial abuse could be alleged.

For many of the pros of opening a joint account with your child, an alternative exists that far outweighs these pros. Your alternative could be to give your child Durable Power of Attorney. This gives them legal authority to act on your behalf. More importantly, the account remains with you and if your child abuses their authority, they can be held accountable. 

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