Why Adding Others to Your Accounts Can Create a Disaster
Recently, advice was shared suggesting that seniors should add their personal representatives directly to bank accounts, vehicle titles, and even credit cards to “make things easier” after death. While it may seem like common-sense wisdom at first glance, it’s terrible advice in practice — and here’s why.
1. Exposure to Their Liabilities. When you add another individual to your accounts, you’re handing them an engraved invitation to your financial life — and any creditors knocking on their door can now come knocking on yours. Imagine: Your child has an unfortunate lawsuit, a car accident, or a messy divorce. Suddenly, your hard-earned savings — meant for your future needs or your heirs — could be fair game.
2. Loss of Control. When you add someone to an account, you aren’t merely giving them access after your death — you’re giving them access immediately.
3. Tax Time Troubles. Adding someone to your assets can trigger unintended gift tax consequences. The IRS sees that as a gift. If you add a child to a bank account worth $100,000, you may be considered to have made a gift over the annual exclusion amount, which could require filing a gift tax return and potentially using part of your lifetime exemption.
4. Capital Gains Nightmare. Inheritance generally comes with a “step-up in basis,” meaning your heirs can avoid hefty capital gains taxes when they sell your assets. But if you add someone’s name now, they may forfeit that step-up, and they could get slapped with a capital gains tax bill.
5. Risk of Theft, Fraud, or Financial Abuse. Sadly, even with the best of intentions, disputes, misunderstandings, or plain old-fashioned greed can rear their ugly heads. Financial exploitation among elders usually starts with “convenient access.”
6. Joint ownership means the surviving co-owner inherits the asset automatically. That asset never passes through your estate. Any heirs you thoughtfully named in your will or trust will be inadvertently disinherited for anything that has been jointly titled. One wrong name on one account could undo your entire estate plan.
There are proper, safe, and court-approved ways to handle these concerns:
- Durable Financial Powers of Attorney for managing finances if needed.
- Payable-on-Death (POD) and Transfer-on-Death (TOD) designations to pass assets cleanly.
- Revocable Living Trusts and Beneficiary Deeds for real estate to avoid probate without giving up control during your lifetime.
When it comes to protecting your life’s work, leave the law to those trained, licensed, and called to practice it. In the business of protecting legacies, relying on unqualified advice is a high-risk strategy with potentially catastrophic outcomes. Expertise matters. Before making major estate planning decisions, seek the counsel of a qualified estate planning attorney.
Your family — and your legacy — deserve no less.