Beware the Joint Account

A joint bank account with a child can be an efficient, effective, and simple estate planning tool. Either of the joint owners can write checks, and the survivor can continue to use the account after one owner dies.

However, a joint account can be fraught with problems if not handled carefully and intentionally. Potential problems are misuse of funds, exposure to creditors (such as a joint owner child’s divorce), and family disagreements as to whom the account should belong after the parent dies.

Once you add a child to your bank account, the child becomes a legal owner with full access to your money — potentially, the child’s creditors may have legal access too.

Sadly, after the parent dies, many families fight over who the money belongs to. The legal ownership of the account automatically shifts entirely to the surviving joint owner. Did the parent really intend the money for the surviving joint owner child, or did the parent want the money distributed equally among all the children?

While children can fight this out in court, I don’t think the parent planned to leave a fractured family fighting over money.

To avoid confusion and family squabbles, be clear with your children now as to how you want the money in your account disbursed after you die. Better yet, hold only a nominal amount in this joint account, just enough to pay bills, and keep the rest of your cash in trust.

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