A common thought among many individuals is to add one or more children or other family members to the individual’s various accounts to make the disposition of the accounts seamless at their death. While this works in theory, it can often add more complications than benefits. We note the following considerations before adding anyone to an account.
Probate Considerations
At death, a joint account with rights of survivorship (hereafter referred to as a joint account) will pass to the surviving account holder(s), thereby avoiding probate.
Creditor Considerations
Adding an individual to an account exposes the entire account to that additional individual’s creditors.
Inheritance Considerations
As mentioned above, at the death of one account holder, a joint account will pass to the surviving account holder(s) regardless of what the deceased account holder’s estate plan indicates. So, if, for example, an individual has two children and has the intent of splitting everything equally between the children, but adds one child to an account in order to help pay bills during the account holder’s lifetime, that account will pass to the child added onto the account and will not be split equally between the two children. The surviving account holder can distribute half of the account to their sibling, but it is important to keep in mind that they are under no obligation to do so. In addition, there could be gift tax implications for the surviving account holder, depending on the size of the account.
Gift Tax Considerations
Simply adding another individual to an account is not deemed to be a gift. However, there is a gift once the joint account holder – the individual who hasn’t contributed anything to the account – withdraws funds from the account. To the extent the withdrawal for their own benefit exceeds the annual exclusion amount ($18,000 in 2024), a gift tax return will need to be filed by the individual who contributed to the account.
Although every situation is different, transfer on death accounts or titling accounts in the name of a revocable trust can often be more favorable than creating convenience joint accounts between non-spouses. Always remember to consult a professional before retitling any account.
