Why You Should not put Your Child on Your Bank Accounts

The idea behind Idaho estate planning is to provide you with the individual protection you need during your life as well as providing a well thought-out plan for distributing your money and property after you die. Many times as we begin reviewing an individual client's needs we discovered that they have taken some steps in an effort to provide protections for themselves. Usually, the most common step that our clients will have taken is that they have put one or more of their children's names on their bank accounts.

The reasoning behind why our clients do this is usually pretty good. Our clients want to have a child listed on their accounts so that the child can help them deal with their bank accounts, finances, bills, and other financially related issues as they arise. In other words, it is done as a convenience and to provide help to the parents as they get older. The problem is that most of our clients think that because they have done this they have really taken care of everything they need to when it comes to their bank accounts. The reality is quite different. Idaho has very specific statutes that deal with bank accounts and how they are handled both during and after the owner of the bank account passes away.

Below is a summary of how Idaho's statutes work and what they accomplish. It's important for you to understand these statutes so that as you complete your Idaho estate plan you will understand exactly how your bank accounts will be handled after your death. Additionally, there are some suggestions that we make when it comes to dealing with bank accounts and having a child help a parent with their finances.

According to Idaho statutes, specifically Idaho code § 15-6-103(a), the ownership of a joint bank account during the lifetime of all the named parties is "in proportion to the net contributions by each to the sums on deposit, unless there is clear and convincing evidence of a different intent." As a result of this language, if you name your children to your bank account they do not automatically become a survivor nor do they automatically get all the money in the account after you die. Rather if your children are named on the account but they don't make any deposits into the account of their own money then the money that is in the account is still owned by the parent when they die. This means that the bank account will have to go through the probate process in order to pass to the parent's heirs or other beneficiaries.

According to the same statute, when it comes to a payable on death account (commonly known as a P.O.D. account) the money in the account, belongs to the original payee during his lifetime and not to the P.O.D. payee or payees; if two (2) or more parties are named as original payees, during their lifetimes, rights as between them are governed by subsection (a) of this section.

When it comes to a right of survivorship Idaho statutes again control. Specifically, Idaho code § 15-6-104 states that,

1. Sums remaining on deposit at the death of a party to a joint account belong to the surviving party or parties as against the estate of the decedent if an intent to give the account can be shown by the surviving party or parties. If there are two (2) or more surviving parties, their respective ownerships during lifetime shall be in proportion to their previous ownership interests under section 15-6-103(a) of this Part augmented by an equal share for each survivor of any interest the decedent may have owned in the account immediately before his death; and the right of survivorship continues between the surviving parties.
2. If the account is a P.O.D. account, on death of the original payee or of the survivor of two (2) or more original payees, any sums remaining on deposit belong to the P.O.D. payee or payees if surviving, or to the survivor of them if one (1) or more die before the original payee; if two (2) or more P.O.D. payees survive, there is no right of survivorship in event of death of a P.O.D. payee thereafter unless the terms of the account or deposit agreement expressly provide for survivorship between them.
3. In other cases, the death of any party to a multiple-party account has no effect on beneficial ownership of the account other than to transfer the rights of the decedent as part of his estate.
4. A right of survivorship arising from the express terms of the account or under this section, if an intent to give can be shown, a beneficiary designation in a trust account, or a P.O.D. payee designation, cannot be changed by will.

So as you can see based on the statutes listed above, just naming your child to an account doesn't necessarily make them a joint owner of the account.

Perhaps the most important thing that you should understand is that even if you are successful in naming your children to your bank accounts, before your children receive any of that money, all of your debts and expenses have to be paid from those accounts first. Again, this is controlled specifically by Idaho statutes.

The main statue that controls this is Idaho code § 15-6-107 which specifically states that,

Except as otherwise provided by statute, a [a person who receives the bank account but not through probate] is subject to liability to the decedent's probate estate for allowed claims against the decedent's probate estate and statutory allowances to the decedent's surviving spouse, minor children and dependent children to the extent the decedent's probate estate is insufficient to satisfy those claims and allowances. The liability of a nonprobate transferee may not exceed the value of nonprobate transfers received or controlled by that transferee.

Nonprobate transferees are liable for the insufficiency described in subsection (2) of this section in the following order:

As a result, if you have named your children to receive your bank accounts on your death, you need to be aware that all your debts and expenses must be paid first. Additionally, any claims that your spouse or children can make statutorily also have to be paid before the person you've named on your account can actually receive the monies that are in the account.

Perhaps the single most important thing for you to understand about naming children to your bank account is that while they may not actually have any ownership interest, their creditors might still be able to come and take portions of the account away while you are alive. This should be very troublesome to parents who named children on their accounts. If your child has bad financial habits, or if they actually happened to have some bad luck like being involved in a car accident or some other action that creates liability, the creditors of your children have a legal right to know about all the assets that your child has, and can execute upon or take away from your child any property that they have that is not specifically protected under Idaho law. This would include your bank account that you've named your children to.

The classic example that I usually give to clients is a car accident. If your child has great credit history and does well with her finances but they get into a car accident and their insurance is not adequate to cover the damages, the injured individual can take away your bank account as a way of paying off that liability. However, whatever you do don't give up hope. There is a way for you to protect yourself and to get help from your children too, as I mention in the next section below.

The good news is that there is a specific mechanism under Idaho estate planning law that will provide you the ability to have your children help you with your bank accounts and yet still protect your accounts. When it comes to your bank accounts the single best thing that you can do is to create a durable power of attorney where you name your child as individual who has your power of attorney. In this instance, your child does not actually have any ownership interest in your bank accounts. Rather, the ownership remains with you. However, by creating a durable power of attorney, you give legal authority to your children to do everything for you that you would need them to do with your bank accounts to help you without creating any extra concerns about liability.

With a durable power of attorney, your children essentially get to act as if they are you. This gives them the legal authority to access your bank accounts, to handle all your property, to pay your bills, and to make sure that everything is going right, without ever obtaining any ownership interest themselves in your bank accounts. This is like getting the golden ticket because it allows you to do everything you want, without putting your bank account at risk based on your children's lives. A durable power of attorney is only effective while you are alive. You still have the ability to name your children as POD on your bank accounts or to simply leave your accounts to your children in your last will and testament.

So the bottom line recommendation that we always make is do NOT name your children as joint owners on your bank accounts. Rather, use a durable power of attorney as part of your basic estate plan and name your children as the individuals who have that power of attorney to help you when you need it. This gives you the help you may need without putting your bank accounts at risk.

Our experienced Estate Planning team of attorneys can help you and your family with your Idaho estate plan or with your probate needs. Whether you are seeking your own customized Estate Plan or are in need of a Probate for a loved one who has passed, we are available to discuss your options and answer your questions at an initial consultation. Call us toll free at 877.232.6101 or 208.232.6101 for a consultation with the Racine Olson team. You can also email us directly at racine@racinelaw.net. We will answer your questions and will help you solve your Idaho Estate Planning and Probate problems.