Whether you choose to add your adult child to your bank account depends upon your needs and your objectives in doing so. Some individuals place adult children on their bank accounts simply to make it easier for the children to help them with financial activities, such as writing checks, paying bills, and purchasing food, toiletry items, clothing, or medication for them. The danger with this approach is that the adult child essentially has free access to the account, which can be dangerous or foolish in some situations. For instance, an adult child with financial problems might “borrow” money from a parent’s account to pay debts, which could leave the parent without much-needed funds, especially if that parent lives on a fixed income. Even worse, if an adult child fails to pay a credit card debt and the creditor gets a judgment in court against the child, the creditor could reach the funds in the joint account to satisfy the child’s debt, again leaving no recourse for the parent.
If the goal of adding the child to a bank account is to avoid probate, creating a joint account will achieve that goal by simply transferring ownership of the account to the child without going through probate proceedings. However, a more conservative approach might be to change the account to a payable on death (POD) or transfer on death (TOD) account. This allows the adult child no access to the account until the parent passes away. The account proceeds then go directly to the child upon the parent’s death without the need for probate.
Another potential problem with adding a child to a bank account is that doing so can affect the parent’s eligibility for Medicaid and Supplemental Security Income (SSI). Changing an account to a joint account amounts to a transfer or gift for the purposes of Medicaid rules, which means that the parent could be subject to a period of disqualification for Medicaid, if the change occurs in the five-year period prior to the parent needing to qualify for Medicaid. A parent often needs to apply for Medicaid when he or she becomes in need of long-term care. If the parent switches a bank account to a joint account with a child and then applies for Medicaid within the following five years, then the parent will be subject to a divestment penalty. In other words, the state would take the balance of the bank account, divide it by the average monthly cost for nursing home care, and the parent then would be ineligible for Medicaid for a number of months of nursing home coverage that is equal to the value of the bank account.
If you are unsure as to what sort of estate planning mechanisms best meet your needs, you can turn to Legacy Law Center for legal advice about the different options that are available to you. If you or a loved one needs help with estate planning or related issues, you should definitely contact an experienced Michigan estate planning attorney at Legacy Law Center right away. Call Terrence Bertram at Legacy Law Center today and see what we can offer you and your family.
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