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If you’re like most people, adding your child to your bank account seems like the easiest thing to do, rather than relying on legal documents like a power of attorney.  There are at least three reasons why this estate planning “shortcut” is a bad idea.

Your child may have to pay gift taxes if they do the “right thing” for their siblings

When you add your child to a bank account, they become a co-owner of the account, which means they become the sole owner of the account at your death.  Any money they give to their siblings or anyone else will be considered a gift, and will fall under gift tax rules, not under any inheritance rules.  Currently, the gift tax exclusion amount is $14,000.

You disinherit your other children

As one person found out when her sister decided to keep her father’s $100,000 bank account, there was nothing she could do.  Plus, the estate expenses were paid from other assets of the estate, and nothing from the bank account – that money now belongs to her sister.

You expose yourself to your child’s financial woes

The worst thing that could potentially happen to your bank account is to have your child’s own financial woes spill over and effect your account.  Because your child’s name is on the account, collectors, creditors, and litigants are all going to be looking at your bank account.  As a co-owner, your child can take money out for any reason, and you won’t have any recourse against them.  If your grandchildren are applying for college loans, your account could get in the way.

Adding a child to your bank account is one of many choices people make that have unexpected outcomes.  Consulting with a financial planner and an estate planning attorney can help you avoid these pitfalls.

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