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Things to Consider
BANK ACCOUNT
BEFORE Adding Your
Child to an Account
I
t’s rare that I advise my clients to add a child’s nam e to one of
their assets (bank account, real estate, car, etc.) during their
lifetime to save from probate (court process designed to pay
debts and transfer assets from Decedent’s name) and future tax
consequences. For simplicity sake, let’s assume you add your child’s
name to the deed of your home; this means that he/she is now a
legal co-owner of your house. Here are a few reasons why I advise my
clients this may not be a great idea:
IT IS NO LONGER YOURS! Your child now has to consent to the sale
of the home, to you taking a second mortgage, or a home equity line
of credit on the house.
DIVORCE. Should your child (and now co-owner) get divorced, the
future ex-spouse may be entitled to a portion of the value of your
house. And if your child doesn’t have the liquidity to pay the spouse
out of pocket, your house may be at risk of being sold to pay for the
settlement.
LAWSUITS. If your child gets into a car accident and is sued, his/her
share of your house may be included as an asset in the settlement.
CREDITOR DIFFICULTIES. Just like a divorce, if your child gets
behind on bills, his/her debt could allow creditors to lien your house.
YOUR CHILD PASSES AWAY BEFORE YOU. You could end up
paying inheritance tax on the portion of the house your child owns.
Or your child’s portion could be given to his/her heirs such as the
spouse or grandchildren depending on how the deed is written.
YOU HAVE MORE THAN ONE CHILD. Adding only one child to
the deed means that your other children will have no right to the
property upon your passing.
WHEN YOU PASS AWAY YOUR CHILD MAY BECOME FULL
OWNER. He/she may only receive a step-up in basis on HALF of the
asset. Let’s assume that you bought the house for $65,000. In later
years, you add your child as co-owner. When you die, your child is
100% owner of the house, which is now worth $165,000. Your child
must pay both federal and state tax on half of this gain ($50,000),
totaling approximately $15,000.
A C onCierge L Aw F irm
s Estate Planning:
Wills, Power of Attorney,
Trusts
s Guardianships:
Minor, Incapacitated
s Special Needs Planning
s Planning for Veterans
s Long Term Care
Planning
s Estate & Trust
Administration
s Asset Protection Plan
s Tax Planning
contilawpgh.com s [email protected]
While this article provides real estate as an example, a majority
of the reasons listed above hold true for bank accounts and other
investments as well. Adding a co-owner may allow the benefi ciary to
avoid probate, and even reduce the inheritance tax owed, but there
are much better strategies that allow them to eliminate the need
of probate, future capital gains tax, income tax, and reduce future
inheritance tax.
Before adding a co-owner to any of your accounts, contact us
today to fi nd out how we can help you achieve the best results for
your family once you pass away.
This Industry Insight was written by Attorney Michele P. Conti,
an estate planning and elder law attorney.
Michele attended Allegheny College in Meadville, Oxford
University and Duquesne University School of Law, and received
her LL.M. in Taxation from Villanova University.
724.784.0239
BETHEL PARK
❘
WINTER 2018
11