Many people believe an ‘easy’ way to avoid probate or to enable their children to assist them as they get older is to add their child’s name to their bank accounts or to the deed to their home. While this strategy may work in certain situations, there are many reasons why this approach is not recommended.
Your bank account or your home will be at risk if your child is sued. All it takes, is for your child to be in an accident, and the next thing you know, your account or property is being pulled into a lawsuit. Your bank account or your home can be at risk to your child’s debts, creditors or any potential bankruptcy.
If your child goes through a divorce, your accounts or your home may be pulled into the divorce proceeding by your new “outlaws.”
Adding a child to your investment account or real estate can result in an unfavorable tax consequence upon your death. Adding a child to your bank account or deed may constitute in some cases, a gift that may require a ‘gift tax return’ be separately filed.
If you want to sell your home and your child’s name is on the deed, you will need his or her permission to sell it. And finally, if your child has named their own spouse as their power of attorney, your daughter-in-law or son-in-law may have the right to manage your account or, decide what happens to your home.
The bottom line is, there are more effective estate planning tools that can help you avoid or limit your exposure to these situations. A Durable and Financial Power of Attorney and the use of Trusts which include detailed instructions on issues of disability or cognitive decline. Be Educated! Be Proactive!
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