8 Reasons Adding Kids to Your Assets Could Cost You
By Mark Yatros
Recently, a long-time client asked me if she should add her adult son to her bank and investment accounts as well as her house deed.
I was relieved she asked before acting because the answer is nearly always “No.”
I understand why people consider taking these steps. Often, they think it would make it easier for their kids to manage their financial affairs should the need suddenly arise. Others believe it’s an easy way to avoid probate.
But there are many reasons why adding your children to your assets isn’t a good idea. Following are 8 reasons you shouldn’t do this and options for what you could do instead.
1. You’ll take on legal risks
When you add your child as a joint owner on your financial accounts or home, you're tying your assets to theirs in the eyes of the law. If your child gets sued, the money or property you own together could be used to pay off any judgments against either of you. This means your home, savings, and investments could be taken away if your child gets into legal trouble.
2. Your finances could be harmed by your child’s financial problems
When you make your child a joint owner of your bank account or house, you're not just sharing control – you're sharing the risk of their financial troubles. If your child has debts they can't pay, their creditors can go after your shared accounts or property to get their money back.
Also, if your child goes bankrupt, your shared accounts and property won’t be protected in bankruptcy court. Suddenly, your investments and home could be taken away to pay off your child's debts. It's scary that the money and home you count on for security might not be safe after all.
3. Consider the inheritance and tax effects
Sharing ownership with your child can cause big headaches when it comes to who gets what after you're gone. If you pass away, any property or money you own together usually goes to the joint owner, no matter what your will says. This could lead to fights within the family if everyone expects to share things differently.
Tax-wise, it can hit your child's wallet hard, too. When they get your property, they miss out on a "step-up in basis." This means they could pay a lot more in taxes if they sell the property. So, instead of saving money, making your child a joint owner might cost them more when tax time comes around.
4. There could be gift-tax issues
Adding your child to the title of your property or as a joint owner on your accounts can have unintended tax consequences. Transferring such significant assets to your child will likely exceed the annual gift tax exclusion (the annual amount the IRS allows you to give without reporting).
In 2024, you can give others up to $18,000 each (double that if you’re married) before reaching the annual gift exclusion limit. So, if you add your child to your house deed or your accounts, you’ll have to file a gift tax return and most likely pay tax on any amount over the limit.
If you're considering adding your child to your house deed or financial accounts, you must be aware of potential tax implications. Please seek professional guidance from a tax professional or a Certified Financial Planner™. My team and I would be happy to discuss this with you. Please contact us here or call (269) 218-2100.
5. It may negatively impact federal benefits
If you share joint ownership of your home or other assets with your child, they may be unable to get help from a government program if needed. Programs like Medicaid and Supplemental Security Income (SSI) will view your money as your child’s money, too. So, if your child needs these benefits, they might be told they don’t qualify because of what you shared with them.
To get government help for health care or living expenses due to a disability, your child might have to use up the money in the joint account or sell the property first. This "spending down" can be tough because it means using up resources you need today. It's like having to burn through a safety net just to get some support.
6. If your child divorces, you could lose your home and other money
When you make your child a joint owner of your bank account or home, you also make your assets vulnerable if your child goes through a divorce. Your child's spouse may claim a portion of the joint assets as part of the marital property.
In addition, your home may be considered a marital asset, and if the child's spouse claims a share, you might be forced to sell the house or pay out the value to settle the divorce.
7. Joint ownership is difficult to undo
When you add someone else, like your child, as a joint owner on your accounts or property, it's challenging to reverse. You'll need your child's agreement if you ever want to sell or borrow against your home or access all the money in your account. So, your ability to make quick financial decisions becomes limited.
8. Medicaid’s “look-back period” may be impacted
If you think you may be eligible for Medicaid coverage in the future, you must be careful how you handle your money and property now. Medicaid’s “look-back rule” checks to see if you've given away money or put property into someone else's name in the past five years. So, if you apply for Medicaid to help cover the cost of health care or a nursing home, and the government sees you've transferred assets during this time, they may penalize you by making you wait for Medicaid coverage.
So, what should you do instead?
Now that I’ve pointed out why you shouldn’t add your child to your house deed or financial accounts, you may be wondering what you should do instead.
Consider creating a durable power of attorney (DPA). A DPA will allow whoever you name – such as your child – to make financial decisions for you if you can’t make them yourself. Your DPA (or agent) can make all financial decisions and take all financial actions you would normally do, such as signing checks, paying your bills, selling your property, and getting insurance.
You may also consider creating a revocable living trust (RLT). An RLT can include detailed instructions on how you’d like your finances managed if you become incapacitated.
My team and I would be happy to discuss your specific situation with you and guide you on which actions may work for you. Please contact us here or call (269) 218-2100.
This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.
Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.