Why Adding Your Adult Children to Your Bank Account or Real Estate is NOT the Best Way to Plan

Some people think that the “easy” way to avoid probate – or even just the “easy” way to be sure that their “loved ones” can access their money to care for them in the event of incapacity is to add them to their bank accounts or even their real estate.

This is the wrong way for so many reasons it is hard to know where to begin.

First of all – that initial addition of the person would be looked at as a gift. If the value of the gift is over $17,000 then technically a gift tax return is due.

Second – that asset is now considered to be owned by the person added. If they are sued; they file bankruptcy; they get a divorce; etc.; the assets can and may be attached by the creditors and ex-spouses of the person that was added on.

Third – the asset is now considered to be owned by the person added. If the “good daughter” now turns colors – she can wipe out that bank account – use it all for her own needs – try to sell or encumber the real estate – and there is no legal barrier to those actions as it was now considered hers.

Fourth – when the original owner dies – it is generally all considered the asset of the survivor – depending on exactly how title was held. If the “good daughter” stayed good and intends to follow mom or dad’s wishes and divide the remainder with their siblings – or whoever – it is not going to be considered an inheritance from mom or dad’s estate – but rather a gift from good daughter – and if the value of each distribution is over $17,000 then good daughter now needs to file gift tax returns.

If good daughter and her siblings don’t get along – or good daughter gets uninformed advice that the money or asset belongs all to her – and her siblings disagree they will have to take her to court and prove that the intent of mom or dad was NOT to give the asset 100% to Good Daughter – but that they only added her for convenience. This is not always easy to prove.

The smarter way to be sure that if you become incapacitated that your loved ones can access your funds, mange your assets and pay your bills is to have an appropriate estate plan created. If your concern is avoiding probate at death – then again the answer is to have an appropriate estate plan created.

The proper documents allow the people you nominate to act for you when and how you would want and in a way where they are always acting as a fiduciary and not making your assets theirs nor making your assets subject to their creditors and if they did use your assets for their own purposes that would be a breach of their duty and they could be held accountable for their actions.

The poor man’s estate plan – adding children to accounts – adding children to title – usually ends up costing so much more in unintended consequences than what it would have cost to set up an appropriate comprehensive estate plan in the first place.

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