When it comes to management of financial accounts, choosing the "convenient" option may lead to inconvenient and unintended consequences.

When it Comes to Management of Financial Accounts, Choosing the “Convenient” Option May Lead to Inconvenient and Unintended Consequences
 
Generally speaking, there are three (3) ways that a person can hold a bank account (and other like financial accounts) with another person:

• Co-Ownership (with right of survivorship);
• “Payable on Death” with named beneficiaries (a.k.a. a “Totten Trust”); and
• Designated authorized signatory(ies) (a.k.a. a power of attorney).

 
When setting up or reviewing one’s accounts, it is important to be sure that the account is titled properly to avoid any unforeseen consequences.
 
When people age, they inevitably start asking the question, “How will my affairs be handled if I am hospitalized or I lose the mental capacity to handle my affairs?”  One self-help solution to this conundrum that I often hear from people is, “I ‘put’ my adult child on my accounts, and he/she will take care of it…” (i.e. option 1 above). The reason that I hear most often as to why people picked that option is: “It’s convenient.”
 
But, is adding an adult child to a financial account a good idea?  The answer in most, if not all, instances is no.
 
Adding an adult child to your financial account(s) may result in the following unintended consequences:

• Adding an adult child to a financial account may unintentionally change your estate plan. 

For example, if you have three children that you want to benefit equally in your estate under your will or trust (including receiving an equal share of your financial accounts), but you put one ofthose children on one or more of your financial accounts, that child will receive a disproportionate share of your estate because that child will receive the balance in those account(s) as a matter of law via the child being a co-owner of the account(s). In other words, the other children will not receive a share of those co-owned account(s) under your will or trust. *
 
*There may be options to rectify this situation, but it will likely require the cooperation of the unintended beneficiary (i.e. your co-owner child) and will add undue time and undue time and expense to administration of a your estate.

• Adding an adult child to a financial account may subject your assets to the creditors of your child. 
  

For example, if the child on the account is sued and suffers a significant judgment, the judgment creditor may seek to satisfy the judgment out of your account, because legally, your child also now owns your account, even if this was not your intention.

• Adding an adult child to a financial account may inadvertently subject you to the requirement of filing a gift tax return. 
  

 
Merely adding your child to the account will likely not trigger such a requirement, but if your child withdraws more than the current IRS gift tax exemption threshold (approx. $15,000.00), then you may [will most likely] need to file a gift tax return.This consideration should be discussed with your CPA and/or professional tax advisor.

• Adding an adult child to certain financial accounts may unintentionally prevent your child from benefitting from certain tax advantages related to inheritance.
  

 
Before making the decision to add an adult child to your financial account(s), a person should seek counsel with their attorney, CPA, and other professional financial advisor(s), as it may be more advantageous to your child, from a tax standpoint, to inherit account balances rather than received them by gift during your lifetime.

• Adding an adult child to a financial account may unintentionally prevent your child from qualifying from certain means-tested benefits. 
  

 
Because the child becomes an owner of the account, the money in the account may be a countable resource if your child is attempting to qualify for means-tested benefits such as Medicaid or financial aid for their own college-aged children.
 
The good news is that there are alternatives to adding your child to a financial account as a co-owner.  As I mentioned in option 3 above, a child can be designated a power of attorney on the account, or if it is consistent with your estate plan, a child can be added as a “payable on death” beneficiary of certain accounts.  Additionally, there are broader alternatives, such as a financial “durable power of attorney” or a revocable living trust, that may accomplish your goals if you are concerned about the management of your financial affairs in the event of your incapacity or disability.
 
In any event, you should consult with an estate planning attorney prior to making any decision with respect to your estate plan, including making changes regarding the ownership of financial accounts or changes regarding the designation of payable on death beneficiaries for those accounts.   As outlined above, adding a child to your account may seem convenient at the time, but it can cause some very inconvenient consequences both before and after your death.