Adding children to accounts can cause unforeseen problems

Lois Zerrer is an attorney with Zerrer & Pruitt, which specializes in the legal needs of seniors.

A parent will often add a child's name to a bank account or Certificate of Deposit, thinking they are doing it for convenience or to avoid probate. Or just because "that's what the nice clerk at the bank said to do."

However, putting another person's name on an account can turn into a financial disaster.

Putting your child's name on your checking account, savings account or CD, makes that person a joint owner, and the money will automatically belong to the child at the parent's death. But that is not the whole story.

By putting another person's name on the account, you have given him or her an actual interest in the account. In most cases, this is considered a gift and if the amount is large enough, it may trigger the need for a gift tax return to be filed. Also, you cannot take the child's name off of the account without his or her permission. The child has just as much right to the money as you do.

There have been unfortunate instances of children removing as much money from the account as they wished without the parent's permission. A more likely scenario is the fact of a judgment being entered against the person named on the account.

If your son or daughter has a large amount of credit card debt and has a judgment entered, your money could be taken from the account to pay your child's debt. Because the child's name is on the account, it is all deemed to be the child's money.

There have been numerous instances when a parent's savings were wiped out because a creditor of the child comes after any asset with the child's name on it.

Another instance where this could cause a problem is when the child may be eligible for some public benefit. Because a parent put the child's name on accounts or CD's, the child is deemed to possess the asset, even though the parent has no intention of the child having access to the money.

Although these examples use a parent and child, the same principles would apply whenever one person puts another person's name on an account.

However, there are ways for another person to help you pay bills or handle financial affairs.

A Durable Power of Attorney can be used to give another person the authority of handling certain financial matters for you. A DPA can be customized to give broad or narrow powers to your agent. The agent is the person designated to act for you when you cannot act for yourself. He or she should be someone you trust implicitly. The DPA gives the person the authority to write checks and pay bills, if that is what is needed. The person can be given as much authority to handle your finances as you wish.

And you don't have to put someone's name on an account or CD to avoid probate. Missouri has a Non-Probate Transfers Law that allows a person to designate bank accounts as Pay on Death, more commonly known as POD. At the death of the owner, the account or the CD automatically becomes the property of the person named in the POD designation.

There is another means to transfer items of property that have titles. This is known as Transfer on Death, or TOD. For example, your car title can be shown to have a TOD designation so that the child automatically will take ownership of the vehicle on your death.

Think twice about putting another person's name on your accounts. There are ways to keep your accounts safe and still easily meet your needs.