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

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  

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