Should I Add My Kids to My Bank Accounts?

One of my favorite things about being an estate planner is I get to interact with new people on an almost daily basis. In discussing the details about an estate plan, I get to know a lot about the families that I’m meeting with. I can remember one consult in particular where I entered a conference room and found myself in front of my elderly clients and their five adult children. The children had recognized that their parents were getting a little older and maybe needed to get things in order before it was too late. Sometimes, I’m nervous when I’ve got so many cooks in the kitchen, but this consult couldn’t have gone better. The parents made their wishes clear, and the children made it clear that they weren’t there to persuade or influence their parents to make any decisions. As I always do, I kicked the kids out of the room for a few minutes to make sure that they weren’t being pressured into anything. The parents assured me that they were there of their own volition and that the wishes they expressed in the consultation were their own. I commented that it seemed to me that they had raised some excellent kids who were doing a good job of taking care of mom and dad. While I wish all families were as unified and helpful as that family I found myself in front of, the reality is I get to see the ugly side of families as often as I get to see the good side.

One of the more problematic situations I come across when I’m helping someone administer an estate is when a child has been added to a bank account. Usually, this occurs when mom or dad have gotten a little older and they need help paying their bills and handling their finances. The intent is to have the child added to the account to help mom and dad out. Unfortunately, when you pick up one end of the stick, you pick up the other end too. In this case, the other end of the stick is that the account becomes the property of the child when mom and dad die. While that child may feel a moral obligation to share the proceeds of the account with their siblings, they are usually under no legal obligation to do so. In my experience, parents usually like to treat their children equally. However, by naming a child as an account holder, a parent may have inadvertently increased one of their children’s inheritances by a substantial amount.

So, if adding a child to a bank account is such a bad idea, what should older parents do? The best thing to do would be to sign a general durable power of attorney. A power of attorney is a document that nominates an individual to be the agent of the person signing the power of attorney. As an agent, the individual named in the power of attorney can act on behalf of the signer in accordance with the terms of the power of attorney document. This usually means they can do things like access bank accounts, pay bills, and manage finances. This can be a great benefit for elderly parents who need a little bit of help keeping up with things. Importantly, a power of attorney does not change the ownership of bank and other financial accounts. That means that when mom and dad die, the proceeds of their accounts won’t all go to the agent.

In addition to avoiding adding children to bank accounts, parents should avoid the pitfall of naming one child as the beneficiary of their life insurance policy or their financial accounts. It is not uncommon to see one child named with the expectation to that child that they distribute the proceeds to their siblings. However, just like with the bank account, the child named as the beneficiary usually only has a moral obligation and not a legal one to deal with the assets. As such, the child could simply take the money and walk away, leaving their siblings with a substantially smaller inheritance than they thought they were getting. Instead of naming one child, parents should name all the intended beneficiaries on life insurance and other assets. Even better, parents should make additional plans and create a trust and have it named as the beneficiary. This ensures that the proceeds are distributed according to the wishes of the parents, rather than leaving it up to their children.

At Pearson Butler, we have a team of estate planning attorneys ready to help you. To speak to a Utah attorney, call us at (800) 265-2314 or reach us online here.