If you are concerned about becoming sick or being unable to manage your finances, adding a child as a joint owner to your bank account may seem like an easy solution. By adding a child as a joint owner, your child would be able to pay your bills by having access to your bank account. However, the risks of adding a child as a joint owner to your bank account are great. There are both legal and tax consequences that should be carefully considered as the results can be devastating.
First, when you make your child a joint owner on the account, they will have the same rights and ownership of the account as you do. This means that they can write checks on the account without limitation as to amount or for the purpose. They could drain the account at an ATM without your permission. The account is considered theirs just as much as it is considered yours
One of the biggest issues is the unintended tax implications. Pennsylvania is one of the few states that still has an inheritance tax. By adding your child as an owner on the account, in the event that your child would die before, you would pay inheritance tax on your own money. This can be an unwelcome surprise bill. Although the inheritance tax rate for a parent to child is only 4.5%, it is still a tax that you wouldn’t otherwise have to pay…