Thinking About Adding Children To Your Deed And Bank Accounts?

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Let’s face it. As we grow older, we want to make sure that we have someone we can rely upon to take care of us. For those that have lost a husband or wife, children become the most trusted individuals in our lives. But we don’t want to overburden them with our affairs. We want to make our matters streamlined and simple for them to handle. In considering our options, we start to contemplate:

  • How do we structure our lives to make it simple and easy for our children to care for us?
  • Who will take care of our house and bank accounts after we are gone?
  • If I cannot take care for myself, who is going to manage my property?

To be sure, these are important questions and we need to carefully consider the answers. Unfortunately, many people come to the conclusion that adding a child’s name to bank accounts and deeds will solve many of these issues. After all, if a trusted child owns the property, they can handle everything since they are an actual owner. Makes sense. But beware – putting your kids’ names on your assets can be very problematic. Here’s why:

  • You exclude other children from inheriting the property;
  • You are potentially creating conflict among your children; and
  • You could be making a taxable gift.

When parents have multiple children, they often have one child they trust the most. This may be because that child is the most responsible, lives the closest geographically, or maybe just because they are the eldest child. Due to this trust in the child, the parent will place this child on the deed to their house and bank accounts. Why not? They are the most responsible, right? They would take care of you should something happen. And they would not need to file for a conservatorship with the Court to obtain control over your assets.

Example of Common Situation

Let’s analyze the consequences of this strategy with an example: Mother wants to add Daughter to the deed of her house. Mother executes a quitclaim deed listing Daughter as an owner along with herself. Under the terms of the deed, Daughter has a right of survivorship, meaning Daughter receives the property outright at Mother’s death. Mother does not want to exclude her other two children from taking a share of the property, so she instructs Daughter to gift her siblings their one-third (1/3) interest after Mother’s death.

Preventing Other Children from Inheriting

So what is the problem here? Well, there are several issues. First, the problem with this approach is that when Mother passes, Mother excludes her other children from inheriting the property. How is this possible? Mother instructed Daughter to share the property right? Sure, but Mother’s instruction is not legally enforceable. Daughter has a right of survivorship on the property which means she automatically gains 100% ownership of the property at Mother’s death. Moreover, Mother’s last will and testament does not control the distribution of the house, even if the will left everything equally among her children. As Daughter has legally inherited the property and there is nothing requiring her to give any part of the property to her siblings at Mother’s death.

Creating Unneeded Conflict Among Children

That brings us to the second issue: Mother is effectively relying upon Daughter to make the distributions to her siblings. Will Daughter honor Mother’s wishes? Possibly. But Daughter might decide she will not share it with her siblings since she legally owns the property. Such a decision could cause major conflict among the children, and potential litigation, but there would be little recourse for the other children if Daughter decides not to share.

Obviously, you know your children better than anyone. And while they might promise they will follow your wishes and instruction, money makes people act differently. Siblings that might be best buddies one day, may turn into bitter rivals the next when money is at issue. Bottom line: Understand that making one child an owner on the property to the exclusion of others can create substantial conflict.

Gift Tax Complications

Third, by adding Daughter as an owner to the property, Mother is essentially giving Daughter half the value of the property. So if the house is worth $200,000.00, she is giving Daughter a gift of $100,000.00, or one-half (1/2) the value. This gift is problematic because it exceeds the annual federal limit an individual may give to a non-spouse in any given tax year. That limit is currently $15,000.00 per year. Because Daughter’s gift is more than $15,000.00 it is a taxable gift. However, not to worry, Mother can make the gift non-taxable by filing a return with the IRS. She can use some of her lifetime exemption to make the gift non-taxable. But should she decide not to use her exemption, or potentially forgets to file the return, she runs the risk of paying a 40% tax on the value of the gift.

Make Sure You Have Powers of Attorney and a Will

The best way to plan for the future is to have a comprehensive estate plan. Create powers of attorney that appoints one of your children to make healthcare and financial decisions for you. Whoever you appoint will be able to manage your real estate, pay your bills, write checks for you, and generally do anything else you could do financially in your lifetime. By using a power of attorney, you avoid the complications and issues of adding children as owners on your property. They have the same power as they would otherwise have to assist you in managing your affairs. Additionally, remember to write a will that designates an executor that will follow your wishes. Your executor will be responsible for paying off your debts and distributing your assets after your death.

Bottom Line

The main point to take away from this discussion is to be careful when adding children to property or bank accounts. While you may have the best intentions in adding a child, it can have substantial adverse consequences to your estate plan. Give estate planning lawyer John Crow a call at 931-218-7800 if you have concerns about how to manage your property and who you should appoint to manage your affairs.

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