Estate Planning D.I.Y. techniques can have serious consequences.
Don’t Put Your Children’s Name On Your Bank Account.
There are many different ways to plan to pass on your property at the time of your death. However, putting someone’s name on your bank account is not a good idea. There are some reasons why it is a bad idea. Furthermore, there are estate planning techniques that will provide you with the same advantages without any of the negatives of putting their name on your account,
Putting someone’s name on your account puts that money in jeopardy. By placing someone’s name on your account, you are giving them ownership of the money that it is the account. If it is a child and they get divorced, the money in your account could become subject to the divorce proceedings. Your soon to be future in-law could leave the family with half of your money too. If there where a lawsuit involving the other named individual, the money could be subject to the judgment. If there is a bankruptcy, the money in the account could be used to pay the debts of the named individual.
Not only that, but the person who you place on the account can walk into the bank and withdrawal all the money and spend it, and there is nothing that you could do to recover the money. No criminal charges will be filed against the person because legally it was their money.
Good estate planning would be to have you use a power of attorney. A power of attorney allows you to give an individual the power to manage your financial affairs. Not only can a person have the power to write checks or access bank accounts, but also to sell property or manage your stock accounts. A power of attorney does all that without putting your money at risk. The money remains yours and cannot be reached by the creditors of the person acting as your POA. The person acting as your POA owes you a fiduciary duty, which means they must act in your best interest at all time and if they are not they can be held liable for any misconduct.
If you are placing the individual or individuals names on the account to pass them at death, it may work. If you expect one child to distribute the money to the other children — that is a bad idea. First, the child has no legal obligation to pass the money. Second, there are tax implications to this type of distribution. If you are looking to avoid probate and only have cash in an account, try a credit union. Credit Unions and some banks allow you to name a beneficiary designation for your account. At death, these accounts transfer automatically, without probate. This is much better estate planning. You could also create a trust and retitle the accounts into the trust.
Unless you are giving the person the funds today, putting their name on your account is a bad idea. There are many options for estate planning if you wish to avoid probate, but this is not a good one.