Can’t I Just Name A Child On My Bank Account? - Stone Arch Law Office, PLLC (2024)

Estate planning can get overwhelming. Being legal documents that handle a lot of assets, there are so many things that a person has to consider when writing them. Naturally, many people will look for easier ways to transfer their assets to their beneficiaries instead of planning their estate.

One of the shortcuts that people take is simply naming their child in their bank accounts. This is a practical strategy after all, since anyone can be named in a bank account. Any joint owner listed will automatically receive the assets upon the death of the primary account owner, without the need for probate.

Although it sounds easy, people have to be very careful about doing this. There are three things that need to be remembered and considered when listing a child as a joint owner.

1. There can only be one joint owner, who is going to get all the money in the account.

Typically, only two people are allowed to be named in a bank account: the primary owner and a joint owner. What parents usually do is list one of their children as the joint owner of the account. This person will get all the assets when the primary owner dies. However, the problem here arises if there are multiple children.

The joint owner gets all the money in the bank account while the other children who were not named don’t get anything. That could create disproportionate transfers and ultimately, some hard feelings.

If the joint owner is generous enough, he or she can gift the money to the siblings — although this is not mandatory. However, some gift tax issues can also arise because they will be making gifts with the money that was inherited by virtue of joint ownership.

2. The joint owner will have access and control over the money in the account.

Naming someone as a joint owner of a bank account means that they become owners of the money in there as well. They will be able to access it when they want and use the money how they want to.

A joint owner may have liabilities of their own. With their ability to access and use the money also means that they have the ability to lose it. If the joint owner gets sued, for example, the money in the bank account can be used for lawsuit expenses.

3. There can be taxation issues.

Gift tax issues can arise in joint ownership setups. Listing someone as a joint owner is equivalent to making a gift to them for half the value of the account. For example, if a bank account has $100,000, $50,000 belongs to the joint owner. It’s given as a gift by virtue of joint ownership. This can give rise to a gift tax return.

Another taxation problem is capital gains tax – if the asset on which the joint owner is added has appreciated in value (such as in the case of an investment account). In that case, the joint owner keeps the cost basis for purposes of calculating capital gains.

If the assets appreciate after the owner’s death, the cost basis resets to the date of death value. The joint owner can now sell it capital gains-free. Their purchase price is what the value was at the death of the primary owner. If, however, the assets were given to the joint owner during life, the purchase price and cost basis are kept. So when the assets are sold, it’s going to be subject to capital gains tax.

In conclusion, it might not be a good idea to list a child as a joint owner on a bank account in exchange for an estate plan. However, there is another, more practical way to do it. That is by adding a signer and getting a power of attorney document set up so that a person will have the authority to access the money. This will cause less problems in the long run.

Can’t I Just Name A Child On My Bank Account? - Stone Arch Law Office, PLLC (2024)


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