Elderly clients may consider adding one of their middle-aged adult children to their bank account so that child can access the funds for the elder if the elder becomes disabled.  Although it can be useful to have another party available to pay bills if you are sick or away, adding a child's name to a bank account may be more of a hassle than it's worth. Doing so may have unintended consequences for both you and the child.

First, the money in your account could be diverted to unintended parties. If the child divorces, is in debt or has a legal judgment against them, the account may become at risk to the ex-spouse, creditors, or plaintiffs, just because the child's name is on it.  The reason for this is when you add an adult child to a bank account, they become a co-owner of the account and, when assets are owned by somebody, those assets become at risk to one or more of the co-owner's problems.  While you may ultimately be able to prove that you just added your adult child to the account for convenience, and that your money should not be at risk to the adult child's legal and financial problems, doing so may require you to participate in potentially stressful and expensive legal proceedings with an uncertain result.

Secondly, putting someone's name on your bank or credit union account may frustrate the intentions of your Last Will and Testament or Living Trust. Because your child's name is on your account, they may have “rights of survivorship,” which means that the entire account goes to them upon your death. Even if your Will or Trusts states that you want your assets divided equally between your children, the co-ownership arrangement may override your Will or Trust.  While it is true that the child on the bank account could share the funds with their siblings, this may require some gift tax reporting that would otherwise be unnecessary. Also, the child on the account is not legally required to share the funds with their siblings.  This could lead to your children suing each other to determine whether adding a child to the account was done just for convenience or if you wanted the funds to become the sole property of that child upon your death.   

Third, the adult child you added to your account could lose eligibility for benefits and your grandchildren could lose the opportunity for scholarships and financial aid. If your adult child ever becomes disabled and needs to qualify for benefits such as Medicaid or SSI, the account may be counted as an available resource for those programs and may make them ineligible. In regard to your grandchildren, they may not be able to get student aid if the account which their parent's name is on inflates their parent's assets.

Finally, there are a few other potential consequences. If your child dies before you, then the money in the account (if held as tenants in common) could be part of their estate and would be distributed under the terms of their Will in probate, rather than yours. Also, if your child spends the money in the account without your permission, because their name is on the account, they would not be required to pay you back. Either way, the money in your account would have ended up out of your control.

As such, even though adding a child's name to your bank account seems simple and harmless, it can backfire, and lead to united consequences for both you, the adult child on the account, and other family members.  These consequences may be expensive or impossible to undo.

Other options that do not include the risks outlined above yet provide access to the funds in the event of your incapacity, include the use of a comprehensive general durable power of attorney and/or living trusts.  In a power of attorney or trust, you can appoint one or more of your children, or other trusted individuals, to handle your money for you and pay your bills if you are incapacitated or if it is just more convenient.  While your trusted adult child would have access to your funds under these legal instruments, since the adult child does not become an owner of your account, the risks of co-ownership outlined above do not apply. Also, when you appoint a child to act for you under these legal instruments, the adult child becomes your fiduciary.  As a fiduciary, the law provides avenues of relief if the child takes your money or makes extremely poor financial decisions that leads to a loss of your savings.  Finally, if it does make sense to add an adult child to your account, the rest of your estate plan should state whether that was done for convenience, and if so if the funds should be shared with your other children, or if you want the funds in the account to go to the child whose name was added to it.

As part of my elder law and estate planning practice in Troy, Michigan, I help my clients to determine the way that make the most sense for them, based on their personal situation, to provide access to their funds in the event of incapacity.