Adding Adult Children to Ann Arbor Bank Accounts - Simple Solution or Devastating Consequences? (Part 2 of 2)

Mother and Daughters

In our previous blog, we discussed why adding your child to your bank account can have dangerous consequences, such as losing your entire account in the event your child is sued, has a creditor, or gets divorced.  In this blog we discuss the pros and cons of several strategies to allow your child to help you, while still protecting you and your family.

One option is to set up a very small checking account in your child’s name only.  (The rest of your bank accounts should be in your trust name.)  Set up an automatic wire transfer into that account each month, or however often you wish, for only the amount that your child will need to assist you with bills and purchases.  Figuring out a budget ahead of time that includes everything your child will need to pay for on your behalf each month is an easy way to decide on an amount.  In this way, only those month-to-month funds are owned by your child, and only for a brief period of time. However, if you require Medicaid or other public benefits, now or in the future, this type of transfer can be seen as “gifting” and result in a penalty that can delay such benefits.  Please speak to your elder law attorney to discuss methods of preventing this type of penalty before you take the action I’ve recommended.

                A second option, depending on the level of assistance you need, is to add your child as a Co-Trustee on your trust.  As a co-trustee, your child will then have access to those accounts held in the trust.  However, as co-trustee, they also have access to ALL the accounts in your trust name. This requires careful thought about how much financial access you want to give to your children during your lifetime.

                A third option is to leave your bank account in your name alone, but place a beneficiary on the account, typically referred to as a Pay on Death (POD) account, paying it to your trust.  This will avoid probate by having the account paid to your trust at your death.  Because the account is still in your individual name, your child (assuming they are named as the agent on your power of attorney) can sign checks under the authority of the power of attorney.  This allows the account to pass through your trust for probate avoidance, tax planning and equitable distribution to your beneficiaries.  Again, however, this requires thought about whether you’re comfortable allowing your children that level of access to your finances. 

Having your children assist you as you age is a wonderful gift.  Selecting the proper strategy to allow them to help you, while still ensuring that your assets are distributed exactly as you want them to be, may require the guidance of your estate planning attorney to make sure you are picking the strategy to best protect you and your family.