I recently had an older client call asking to add one of their children onto their brokerage account so that the child could help manage their finances (pay bills, etc). This sounds like a great idea. It is easy to do and keeps things simple…except that it doesn’t.
First off, adding your child to your financial account is considered a gift to that child. If the account is larger than $15,000, then you trigger gift tax issues with the IRS which, at the least, requires more forms attached to your tax return. Please refer to a tax advisor for how it would affect your specific situation.
Second, your assets can be reached by your child’s creditors. I know that you raised your child right and that they don’t have any financial issues, but if they lose their job and have trouble paying bills while named on your account, your assets are their assets where creditors are concerned.
Third, divorce. If your child gets divorced while named on your account, your account is considered marital property and subject to divorce negotiations.
Adding your child to your account prior to your passing causes estate issues. Your child’s “rights-of-survivorship” regarding the account means that the entirety of the account goes to the child on the account, not to your other children or beneficiaries who may be named in your will.
Speaking of beneficiaries, if the unfortunate happens and your child pre-deceases you, their beneficiaries would receive a portion of your account in accordance with the terms of your child’s will.
A better idea is to get a Durable Financial Power of Attorney. This document allows your child (or anyone you appoint) to use your assets to pay for your day-to-day expenses and manage your income. With the Durable Financial Power of Attorney, you can determine what they can and can’t do, so it gives you the control that you are looking for while also giving you the peace of mind that they can take care of your affairs.
I bring up this topic so that you can start the conversation and understand some of the pitfalls. Each person’s situation is unique, so work with someone you trust to find the right solution for you.