It’s something I see often, an aging parent adding one of their children as a co-owner on their accounts for day-to-day assistance, incapacity management, and probate avoidance. While well-intended, adding a child as co-owner on accounts is a problematic “do-it-yourself” estate planning strategy. In most cases, it creates more risk, expense, and family conflict than it avoids.

By adding a child as co-owner, you are giving them immediate ownership interest in the account. Even if your intent is purely for convenience for management of the account on your behalf, legally, that account also belongs to your child.

 

Why Child Co-Ownership on Accounts Can be Problematic:

  1. Your Child’s Creditors May be Able to Reach Your Money. This is one of the biggest risks for co-owned accounts. As soon as your child becomes a co-owner on your accounts, your child’s creditors may be able to access the accounts, even if every dollar originally came from you. Examples include lawsuits, bankruptcy, IRS liens, business debts, or even divorce. You may be exposing your savings to risks that have nothing to do with your own finances or behavior by adding your child as co-owner on your accounts.
  2. Family In-Fighting. If you add one child as a co-owner, that one child will take over full ownership of the account (so long as it’s titled as joint tenants with rights of survivorship, which is the default for bank accounts)[1] after the parent’s death. There is then no legal requirement for that one child to share the account balance with your other children. The account is not part of your estate, it is now owned solely by the one child you had as co-owner. Immediate conflict ensues between “Mom wanted me to have it” and “that account was supposed to be divided equally among us siblings”.
  3. You Lose Legal Recourse for Wrongdoing. As a co-owner, your child has the same rights as you do to the account. This means the child can withdraw funds and transfer money as an owner of the account. It’s hard to make a claim for theft when it’s one of the owners that moves the funds. Even if you trust your child completely, life happens and relationships can change.

[1] Note, the other survivorship for co-owned accounts with a child is Tenants in Common. This survivorship can be even trickier by subjecting half of the account to probate at your death and the other half remaining owned by your co-owner child.

  1. You May be Making an Unintended Gift. Depending on the amounts in the accounts, you may unintentionally trigger federal gift tax reporting requirements.

There are other reasons why adding a child as co-owner on accounts can be problematic, but these are the heavy hitters.

Outside the scope of this article but worth mentioning, a similar, and often even more dangerous scenario, is for a parent to add one of their kids as a co-owner on real estate, usually the parent’s primary residence. The same problems above can apply. But, complicating the situation even more is that deeds are tricky and if not prepared properly, a probate can still get triggered after the parent’s death.

 

What to do Instead: Safer Estate Planning Strategies:

  1. Use a Durable Power of Attorney. A Durable Power of Attorney (“DPOA”) is used for incapacity and day-to-day account management. Your Agent under the DPOA can access your accounts and manage your real estate as a fiduciary, not as an owner. So, the above risks of co-ownership do not apply.
  2. Use Beneficiary Designations Intentionally. Bank accounts, investment accounts, and retirement accounts all allow for beneficiary designations. Sometimes they are called “payable on death” (POD) or “transfer on death” (TOD) depending on the type of account, but they all work the same way which is to transfer ownership at the death of the account owner to the person(s) listed on the designation. Remember, you can do this for your checking and savings accounts too. Beneficiary designations are a tried-and-true tool for avoiding probate. It’s important to use beneficiary designations with intention and mindfully so that they meet your inheritance goals for your accounts.
  3. Consider a Revocable Living Trust. Trusts provide for more nuanced and detailed planning and is a common probate-avoidance and incapacity planning tool. You remain in control of the trust assets while you are able, and if you become incapacitated or pass away, your successor trustee steps in seamlessly to follow the rules of the trust for the trust asset management and inheritance distribution.

 

Good planning is about meeting your planning goals while protecting yourself and the people you love. If you currently have accounts that are co-owned with a child, now is a good time to pause and review whether this strategy is really working for you. Florida law offers better tools, without exposing your assets or your family to avoidable problems.

Avoid the co-ownership trap and work with an estate planning attorney to provide the guidance to help you meet your planning goals while keeping you in control and minimizing risk.

 

Disclaimer: The information provided in this article is for general informational purposes only and does not constitute legal advice. No attorney-client relationship is formed by reading this content. Any state-specific information in this article is based on Florida law at the time this article was written. Laws and regulations vary by jurisdiction and may change over time. If you need legal assistance, please consult a qualified attorney regarding your specific situation.