By Carolyn E. Hartle, Esquire, May 10 2018 06:03PM
During my years of practicing law, I frequently hear that an individual added his/her child’s name onto his/her bank account so that the child could continue to pay bills if something happened to the individual. However, in almost all of these instances, the individual had executed a Power of Attorney, which is a legal document where an Agent is appointed to handle all of the financial matters of the individual if he/she becomes mentally or physically incapacitated.
When an individual has executed a Power of Attorney, there is no need to add another individual’s name onto the account. In fact, it often causes the following problems:
1. Since the individuals whose names are on the account are owners of the account, any of them can withdraw funds from the account without the knowledge or consent of the other individuals. So, this can lead to the individual added to the account withdrawing all of the funds for his/her own use and there is nothing the other owner of the account can do.
2. Upon the death of one of the owners, the balance of the account becomes the property of the surviving owners. For example, a father has four children but only one lives locally. So, the father adds the name of the child who lives locally on his bank account. When the father dies, the bank account becomes owned solely by the child whose name is on the bank account; this child does not have to share the account with his/her three siblings. While the child who now owns the bank account can split it equally with his/her siblings, under the law, he/she is the sole owner and can keep it all for himself/herself.
3. If you add another individual’s name onto your bank account and the individual passes away before you, you must pay Pennsylvania Inheritance Tax on the deceased owner’s share of the account.
4. If another individual’s name is added onto the account and said individual later files for bankruptcy, he/she must disclose to the bankruptcy court this account, which can then become subject to the bankruptcy proceedings.
5. When another individual’s name is added to the bank account and he/she has children in college applying for financial aid, this account is an asset that must be disclosed and may negatively impact the financial aid package.
While adding an individual’s name onto a bank account is a simple procedure, there are many reasons to leave the account in your name alone and simply let your Agent under your Power of Attorney manage your financial matters, when and if, it is necessary to do so.