Estate planning is one of the 5 pillars of financial planning. During almost all our meetings, we touch on all five of these pillars. One of the most common questions we receive when discussing estate planning is:
“Should I just add one of my kids to my bank account?”
As families consider aging, emergencies, and estate simplification, adding a child to an account can feel like a convenient and practical solution. The goal of many clients is to ensure they are not a burden to their loved ones, both during their lifetimes and beyond.
Adding a child to your bank accounts can have some advantages. When done with good intentions, joint ownership can offer several benefits to your loved ones. These include immediate access to your assets if something happens and bills need to be paid. Convenience for helping with day-to-day financial tasks. Probate avoidance, since jointly owned accounts typically pass directly to the surviving owner. Peace of mind, knowing someone trusted can step in quickly.
For many parents, this feels proactive and responsible. In some situations, it can even be helpful in the short term. However, what often gets overlooked is that these benefits come with significant risk. As fiduciaries, we at Harford Financial Group want to make sure we educate our clients about these risks. While joint ownership can avoid probate, it comes with several serious downsides.
Loss of Control
Once a child is added as a joint owner, they are legally part-owners of the account. Not just after your death. They may be able to withdraw funds, change account details, or even close the account without your consent.
Exposure to Creditors and Lawsuits
If your child is sued, goes through bankruptcy, or has outstanding debts, your account could be at risk. Since the account is legally theirs, creditors may be able to make a claim against it, even if every dollar came from you. This is one of the most overlooked risks of joint ownership.
Divorce Risk
If your child goes through a divorce, a jointly owned account may be considered a marital asset. That means funds you intended for your own security, or for all your children, could become entangled in divorce proceedings.
Unequal or Unintended Inheritances
Adding one child as a joint owner often unintentionally favors that child over others. Upon your passing, the account typically becomes 100% theirs, regardless of what your will says. This can override your estate plan goals, create family conflict, and lead to resentment or legal disputes.
In certain very specific situations, joint ownership may be appropriate. Most commonly, we have seen this in caregiving situations. Even then, it is very important that everyone involved fully understands the risks. In most situations, there are safer alternatives.
One of the most effective tools for estate planning is properly setting up account designations. These are Payable on Death (POD) and Transfer on Death (TOD) for bank and brokerage accounts, respectively. POD and TOD designations work similarly to how beneficiaries act in traditional retirement accounts.
With POD and TOD accounts, you keep full control of your assets during your lifetime. Assets from these accounts pass directly to your beneficiaries at death. These designations allow your accounts to avoid probate. These designations also ensure that any potential financial issues that your child may face do not affect your assets. In most cases, POD and TOD designations accomplish the same goal as joint ownership, but with far fewer risks.
If you have any questions about estate planning, Harford Financial Group would love to schedule time to discuss it with you, call us today at 410-838-2992.