20 Nov Boundaries are Good!
We all love our children, but there are areas we have to use wisdom. Allowing kids to have full control over assets by putting them on a title or a bank account, may not be most beneficial. We have seen multiple clients add their children on titles to their house or onto bank accounts, and in the end wish they hadn’t. Phelps Law is committed to helping you protect yourself, your assets and most importantly your kids’ future.
The reasons people add their child to their title of the house or bank account, are actually misconceptions. These include:
- Avoiding Probate: This is actually not the case. In some ways it can avoid probate, but in the long run can end up having several more issues with the court when the other siblings are fighting for access.
- Saving Money: Some believe it is easier to put their child on the title and that they can do this themselves. It is possible, but then it will end up costing more money later on if there are several areas not specifically protected through a well drafted trust.
- Easy Access: While it is helpful for your kids to have easy access to pay your bills, it may also be a lot of responsibility to put on them without accountability.
These seem like viable reasons to add your child to your title. However, by doing this, it causes several types of liability, tax and family consequences.
There are several consequences that arise for the child and the parents. These include:
- Liability: If the child is sued, goes through divorce, bankruptcy, or other unforeseen issues, mom and dad’s house or bank account is now exposed to the child’s problems.
- Taxes: Putting a child on the account, is seen as the parents giving a gift to the child which may need to be reported to the IRS. Also, with the child on the title of an asset with built-in appreciation, the child is liable for the capital gain taxes on the assets.
- Family: Favoritism becomes an issue between kids as this would leave assets belonging to only one child when the parents die, and the other kids having nothing.
The best method to avoid all the consequences is to create a revocable living trust. If the asset is properly titled in the revocable living trust then:
- There is access to the account or asset during a time of disability to pay bills.
- The asset will pass to the right people in a fair manner when mom and dad pass away.
- The asset will receive the best tax treatment upon death.
- The asset still belongs to you so it is not exposed to a child’s lawsuit, divorce, etc.
To avoid the consequences of cost, time and tearing your family apart, contact Phelps Law today to discuss further details on how to protect you and your children.
Images used under creative commons license – commercial use (11/20/2017) anthony kelly (Flickr)