Clients often ask whether they should add their children to their bank accounts, or they report to us that they have already added their children’s names to one or more accounts.  What does “adding” mean, and what are some of the consequences of having your child on your bank account?

Owner vs. Agent under Power of Attorney

Adding a name to a bank account often means that you have added an owner.  The bank generally requires both owners to complete and sign a joint application and a signature card to open a joint bank account.  That process enables both owners to have access and control of the account.  Either owner can make deposits or withdraw funds without the permission of the other.  If you already have an existing account, most banks will not allow a joint owner to be added.  The existing account will need to be closed, a new joint account opened, and all automatic debits and credits redirected to the new account.  This can take some time, especially when it comes to automatic payments like Social Security or pensions.

If you are adding an agent under your Power of Attorney, that can be done by showing the bank a copy or original of your Financial Power of Attorney (“FPOA”).  The Agent’s actions must be consistent with the power authorized under the FPOA.  This includes paying your bills by writing checks and signing them with your agent’s name, followed by “POA” after the signature.  The Agent is not an owner of the account.

How are Jointly Owned Accounts Treated?

There are different treatments for accounts that include both the parent and child as co-owners, as compared to a child acting as agent.

Medicaid applications

If you are applying for Medicaid and have added your child as a co-owner of an account, the full value of that account will be treated as an available or countable asset.  As long as you are listed as the primary owner and your Social Security number is used, there will be no period of ineligibility assessed for adding your child as an owner.  However, if your child withdraws money from the jointly-held bank account during the five year look back period, that amount is considered a reportable gift that may create a period of ineligibility for Medicaid.

Inheritance tax

When you die, if your child has been listed as a co-owner, that account automatically passes to the co-owner child.  It does not pass through your will.   If your child has been a joint owner for more than one year, only half of the date of death value of that account is subject to Pennsylvania inheritance tax.  For example, if you added your child to your checking account on February 1, 2023, and you die on or after February 2, 2024, with the date of death value of that account at $20,000.00, only half of the date of death value ($10,000.00) is subject to the 4.5% rate of inheritance tax, or $450.00.  If you die within one year, or prior to February 2, 2024, all of the $20,000.00 will be subject to the 4.5% rate of inheritance tax, or $900.00.  Conversely, if your child dies before you, you will owe inheritance tax on your own money consistent with the rules above.

If you have added your child as an authorized signer only through a bank form or with your FPOA, when you die, that bank account will be part of your probate assets and pass under your will.  Unless the date of death balance is below a certain amount, your Executor will have to open an estate and begin probate in order to access the monies in that bank account.  All the funds in the account on the date of death will be included in the gross amount of your assets subject to inheritance tax.

Other considerations

If you have more than one child and have added only one of them as a joint owner, you may have created the unintended consequence of unequal distribution of your assets at your death.  Your co-owner child has a legal right to that money and does not have to share any of the funds with their siblings.  This may create hard feelings between your children.  There can also be income tax consequences of adding a joint owner on an account.

Adding a joint owner on an account should be discussed thoroughly and as part of comprehensive estate planning.  Medicaid is not for do-it-yourselfers.  You need an experienced Certified Elder Law Attorney to help you navigate through all considerations and get the best result.