I’ve come to understand that my estate planning clients are always well-meaning, but often make mistakes in their estate planning simply because they don’t understand the legal effect of their actions. One of the areas that I find is often a concern is when an older parent puts a child’s name as a co-owner on their banking accounts.
Typically this occurs when a person is getting older and they are concerned about their ability to continue paying their bills and doing the financial things that they would normally do with their bank accounts. In this circumstance this older adult will often name one of their adult children as a co-owner on their bank accounts so the child can sign checks for bills and the like. Their reasoning is that by doing this they are assured that their bills will get paid and all of their financial obligations will continue to be met. The problem is, the legal effect of naming a child on your bank account is way different than what you may understand.
Most parents I know want to leave their estate split equally between all of their children. Bank accounts are usually no exception to this. I found in my dealings with individuals getting their estate planning done, that their plan and goal is to have the money in their bank accounts split and distributed evenly between their children. In fact, some people may go as far as to name all of their children as equal beneficiaries on the bank accounts.
The problem is, that there is in fact a legal effect to naming a child as a co-owner of your bank account. Your bank account is subject to the contract document you signed when you opened the account with the bank. On this contract document there is a section that requires you to list who the owners of the account are. Typically in that same area there is language that is called a right of survivorship. Essentially, what this means is that the survivor who is listed as an owner on the account is the sole owner of the account and of the money. Any person who is named as an account owner has a right to either put money in the bank or take it out. The bank has no say because of the language in the contract.
Here’s where the problem arises: when an adult child is named as a co-owner on the account, they are legally the owner of the account when you pass away. What this means is that this child has the ability to take all the money from that account. There is no legal obligation for them to share that money with their siblings. I’ve often found that in families where this has occurred the adult child whose name is listed as the co-owner of the account will simply take the money. This is often contrary to the wishes of the parent before their death.
The simple way to avoid this problem is to not name any of your children as co-owners on your bank account. Rather, the appropriate action to take is to name your child as your attorney in fact under a Durable Power of Attorney document. This gives that child the ability to access your bank accounts in the event you are disabled or no longer have capacity to handle your own finances. However, this does not name your child as an owner on the account. They only have the right to use the money in your account for your benefit and on your behalf. When you pass away, your money will then be distributed based on who you name as the beneficiaries of your account.
So to avoid problems with regards to distribution of the money you have in your bank accounts, the wisest course of action is to use a Durable Power of Attorney. This is far better than naming your child as a co-owner on the account and setting your child up for potential problems with their siblings after you are gone.
If you have questions about naming your children as co-owners on your bank accounts, we can help. Call us toll free at 877-232-6101 or 208-232-6101 for a consultation with Lane Erickson and the Racine Olson team of Estate Planning attorneys in Idaho. You can also email Lane Erickson directly at lve@racinelaw.net. We will answer your Idaho Estate Planning questions and will help you solve your Idaho Estate Planning problems.
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