Although it can be useful to have another party available to keep track of bills when you're sick or away, adding a child's name to a bank account may be more of a hassle than it's worth. Doing so may have unintended consequences for both you and the child.
First of all, the money in your account could be diverted to unintended parties. As of 2015, if the account held anything over $14,000, you would have had to notify the IRS and possibly pay gift taxes. If the child divorces, is in debt or has a legal judgment against them, the account becomes available to the ex-spouse, creditors, or plaintiffs, just because the child's name is on it.
Second, putting someone's name – and a potential beneficiary's name, at that – may frustrate the intentions of your will. If, when you add your child's name to your account you indicate that they have “rights of survivorship,” the entire account goes to them upon your death, regardless of what your will states. If you wanted your assets divided equally between your children, for example, then whichever child has his or her name on the account will now get more than your other children. (A 2019 update to Maine law required banks to include "a clear and conspicuous printed notice" asking whether you intend for the person whose name you are adding to have rights of survivorship.)
Third, your child could lose eligibility for public benefits, and your grandchildren could lose the opportunity for scholarships and financial aid. If your child ever needs public assistance, such as Medicaid, the account will be counted as an available resource and may make them ineligible. Likewise regarding your grandchildren; they may not be able to get student aid if the account which their parent's name is on inflates their parent's assets.
Finally, there are a few other potential consequences. If your child dies before you, then the money in the account (if held as tenants in common) could be considered part of their estate. If that were to happen, it would be distributed under the terms of your child's will, rather than yours. Worse, if your child spends the money in the account without your permission, they would not be required to pay you back. Either way, the money in your account would have ended up out of your control.
Even though adding a child's name to your bank account seems harmless, it can backfire, and lead to consequences for both you and your child. We can help you find ways to protect your bank accounts during your lifetime, and pass money on to your children without the threat of creditors reaching that money. The simplest alternative would be appointing an agent under Power of Attorney.
If you have any questions or need guidance in your planning or planning for a loved one, please don't hesitate to contact our Winthrop, Maine office by dialing us at (207) 377-6966.
