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Just Say No to Adding Children as Joint Owners of Bank Accounts

Attorney Thomas B. Burton discusses why you should "Just Say No to Adding Children as Joint Owners of Bank Accounts" in the latest episode of his Estate Planning 101 educational series. In this video Attorney Burton explains the dangers of adding a child to your bank account as a joint account owner and goes through many of the unintended consequences that can occur from adding a child as a joint owner of a bank account, including exposure to lawsuits and creditor claims during your lifetime.

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Welcome back, I'm Attorney Thomas Burton, I'm an estate planning and asset protection attorney here in Wisconsin and today, we're going to talk about adding adult children to your bank accounts whether you should add them as a joint owner or not?

So this is a question that comes up frequently in my estate planning practice, the idea 'Should I add my children to my bank accounts as a joint owner, so that they can help me pay bills and avoid probate upon death?'

So this is a complex topic and I wanted to record a full video discussing my view on this topic and I'm going to give you three reasons why I don't think it's a good idea and then a fourth reason what I believe is a better option.

So let's jump right into it, so today's topic - adding children to bank accounts and once again, I'm going to use my yellow legal pad to get to reason number 1 - why I think you should be cautious about adding a child to a bank account is this right here, the title to the bank account trumps your will. So if you add a child to the bank account as a joint owner, they become an immediate owner of the account and a co-owner of the assets. This can frustrate the estate planning provisions in your will and lead to unintended consequences and here's the big example I see this happen, sometimes people try to plan their estate where they have a house and then they have the bank account and they may say the house is going to go to, I've seen this before, one child and the bank accounts will go to this other child. So I will just add the child's name to the bank accounts, is the way they think of it, but they do that at one point in time then later in life, they sell the house and move into a nursing home or other advanced care facility or an apartment. So they no longer own the house and suddenly the closing happens and the money from the house sale gets deposited into, oftentimes there's one bank account or maybe two but if they're titled jointly with this child, it goes into the bank account. So suddenly, let's say there's two children, child number two owns the entire contents of the bank account when the parent passes away and the will may still say the house goes to child number one but no one thought of it till they pass away and then it's too late. So when you're doing your estate planning, think about the fact that an asset you own today, can become a different asset tomorrow. Specifically, hard assets like real estate can be turned into cash and put into the bank account and you have to remember the title to the bank account will trump what's in your will because that's a matter of contract law and it will pass to the joint owner automatically on death. So for that reason, I caution against adding a child to a bank account.

Reason number 2, why I don't think it's a good idea is, you can expose your assets to your child's creditors by making them a joint owner of the bank account. If you make them an immediate joint owner, it can expose the bank account to lawsuits, creditors, bankruptcy and or divorce of the child. Now let's talk about lawsuits because sometimes I think when I bring this up, people think I'm making a judgment on the child and I am not at all, in fact, you can be involved in a lawsuit through no fault of your own! Let's think of a car accident, specifically here in Wisconsin, winter car accident. Sometimes can involve multiple pileups of cars and if your child was one of them involved and there's lawsuits later to settle the injuries, if your child's name is a joint owner on your bank account, inadvertently creditors looking for money, could come after that bank account.

So for this reason I feel it's better to keep the children off the title to the bank account until you pass away. Let title pass upon death. There's also better tax reasons for that, they can inherit it from you upon death. Now if you also put a child on a bank account during life, sometimes people will say to me, well like my previous example with the house, if that happened, I trust child number two to get the money for the house to child number one and while that may happen, it's not legally what's laid out in the document, so that becomes a problem because then, what has to happen, let's say the child does want to honor your wishes that way, they have to essentially make a gift, let's say the house was worth $150,000, they have to gift to their sibling $150,000 and use up some of their own lifetime estate and gift tax exemption instead of using the estate tax exemption, you had at your death and I'm referring to you as the the senior citizen or the parent. So it's better to do it all legally through your documents and have it laid out the way you want it.

So the third reason and you've seen this as we're talking the problem with adding their name to the actual bank accounts, they become a joint owner instead of a fiduciary and I prefer using fiduciary relationships where the child is acting you either under the durable power of attorney for finances or the best as trustee under the trust. A fiduciary relationship means they have to look out for your best interests and use the money or funds only for your care and health maintenance and welfare and when we have a fiduciary relationship, we have protection inside either the Wisconsin statutes or the Wisconsin trust code as it relates to the financial power of attorney or as the trustee, under the trust. So in my opinion, it's better to use a fiduciary relationship.

And that leads us to point number 4, if I don't think it's a good idea to add children as joint owners of bank account, what's the answer?

And that is 4 - 'Better to appoint a fiduciary' and here I've got it laid out for you, a trustee under a trust as a fiduciary or an agent under power of attorney and we want to have them have signature authority only, not joint owner of any accounts and my preferred method of planning is using a trust to pass all the assets to the heirs. It's what we call the 'One Vehicle Method' and you can have the house, the bank accounts, the personal property such as jewelry, clothing, furniture all can flow through the revocable trust and avoid probate costs, time, expense and court fees by passing it all through the one vehicle of the revocable trust. As an aside from my experience with bank trust departments, I've been told they prefer dealing with trustees under trust agreements as well. So while you can do some of these things, in terms of having an agent act for you, under a durable financial power of attorney, in my opinion, the best is to set up a trust, retitle all the assets into the trust while you're alive. Then you have incapacity protection, if you're ever unable to manage your own assets and after you're gone, the trustee takes over seamlessly to manage the assets and distribute them according to your plan.

So the great thing about a trust is you put it all together while you're alive and the trust keeps flowing through even incapacity or your death and there's always someone named to act over those assets. Using this method, avoids putting the child's name on the account directly and it avoids exposing it to creditors, lawsuits as we discussed earlier. So if you use a will plan, you're going to want to name a fiduciary, under a durable financial power of attorney. If you use a trust plan, we can have your trustee in place to manage all your assets but again, much better in my opinion that making a child an immediate joint owner is having them act as a fiduciary, act in your best interest, for your assets, on your behalf.

And that leads me to my conclusion for today, which is 'Just Say No to Adding Children As Joint Owners of Bank Accounts'. So if you remember one thing from today with your estate planning is just say no to adding children as joint owners of bank accounts. In my opinion, it can only lead to issues down the road and it's not the best way to protect both you and your assets and your children from creditors, lawsuits and their own actions. So the better way is to keep things separate during life and only have title to the assets pass upon your death and then have them pass according to your estate plan and just as a reminder, what we talked about today, the danger to doing it the other way and putting the children on the bank accounts as it can frustrate your estate plan which you've spent time and money putting in place. You can inadvertently, frustrate your estate plan because title to the account will determine how the assets pass upon death.

So I hope this has been helpful to you. If it has, consider giving a like so others can see and benefit from this content as well and subscribe to the channel, so you get updates when we post future videos like this.

So thanks for tuning in and we'll see you next time.


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