Q. I would like a professional's opinion on the pros/cons of adding an adult child's name to an elderly parent's bank accounts. I have heard conflicting opinions from friends and relatives. My belief is that it is a good thing to do and helps tremendously when the time comes to settle the estate. True? -- Tami, Sacramento
A: Adding an adult child's name to their elderly parent's bank accounts may seem like an easy way to mitigate future estate issues, but there are problems with this approach, which include:
â€¢ All account owners have equal rights to deposited funds. Children who are co-owners can make withdrawals from the bank accounts for their own behalf.
â€¢ The money in the shared account is considered an asset of that child, which means that the child's creditors can lay claim to those accounts.
â€¢ Interest earned is taxable to both signers on the account.
â€¢ Putting someone's name on an account might trigger gift tax issues, if money is withdrawn by the non-contributing owner.
If the primary concern is having the funds readily available after death, i.e., avoid delays associated with probate, the accounts can be made "Transferable on Death," which means that the account will automatically transfer to the person named as the beneficiary.
If the intent is for the adult child to assist the parents with paying bills, or looking out for their finances, their parents can give them "Durable Power of Attorney." This gives them legal authority to act on the behalf of the parents. Most importantly, the assets remain with the parents. In addition, when adult children accept this authority, they have a legal responsibility to look out for their parents' best interests. If they abuse this duty, they can be held accountable.
You can avoid the pitfalls mentioned above, and others, by seeking the counsel of a qualified estate planning attorney.