“I’d like to add my child to my bank account, just in case something happens to me.” It’s a request that financial advisors get frequently from parents.
When parents say, “just in case,” they usually mean two things. Someone should be able to pay the bills if I can’t, and my money should pass smoothly to my kids when I’m gone. A joint account may attempt to accomplish both objectives but depending on the circumstances, it may not be the most effective solution.
It seems like it should be an effortless process, too, and with proper planning, it can be. But parents should be aware that simply making a child the joint owner of a bank account, (or investment account or safe deposit box) can have unintended consequences – and often it’s not the best solution during a family crisis.
The Trouble with Joint Bank Accounts
Many financial institutions establish joint accounts as, “Joint with Rights of Survivorship” (JWROS) though account titling may vary. This type of account ownership generally states that upon the death of either owner, the assets automatically transfer to the surviving owner. This can create a few unexpected issues.
- Your will gets bypassed. If the intent was for the remaining assets not spent during the family crisis to be distributed via terms of a will, that’s not going to happen. As previously stated, the assets automatically transfer to the surviving owner, regardless of what your will says.
- Gift tax reporting. Adding anyone other than a spouse may create a federal gift tax filing depending on the circumstances. For 2026, anyone can gift up to $19,000 per year tax free to as many people as they want, but if the gift to one person exceeds $19,000, and the recipient is not a spouse, the one making the gift will need to file a gift tax return. With a joint bank account, the gift generally happens when the child withdraws money for their own use, not when they’re added to the account. For example, if a parent has a $500,000 account titled JWROS, naming their child as a joint owner, and the child makes a $25,000 withdrawal, the parent has effectively made a $25,000 gift, $6,000 over the annual exclusion. The good news is that in most cases no tax is owed, since it just counts against the parent’s lifetime exemption ($15 million per person in 2026). But it’s paperwork most families don’t see coming.
- Tax if your child dies first. If a parent adds a child to their $500,000 savings account and the child predeceases the parent, a portion of the account value could be includable in the child’s estate for state inheritance/estate tax purposes depending upon applicable state law and the facts surrounding ownership of the account. In this scenario, the assets would transfer back to the parent, and depending on the child’s state of residence, state inheritance tax could be due on 50% (or more) of the account value. In Pennsylvania, where my office is located, the inheritance tax rate on transfers between parents and children is 4.5%.
- Creditor and divorce exposure. Because your child is a legal owner of the account, it could be exposed to their creditors, a lawsuit, or a divorce settlement, even though it’s really your money.
- Siblings can be left out. If you have more than one child and add only one of them, that child legally inherits the whole account when you pass, no matter what your will says about splitting things equally. They may fully intend to share it, but they’re under no obligation to, and sharing it could create gift tax issues of its own.
A Better Way: Transfer on Death (TOD)
If the purpose of adding a joint owner to your account(s) is to make sure your money passes smoothy to them upon your death, there’s a better way to do it. Most financial institutions will allow you to structure an account, “Transfer on Death,” or TOD. This is simply adding one or more beneficiaries to your account. There are a few benefits that this type of account has over a JWROS account.
- If the beneficiary passes away before the account owner(s), nothing happens. The previous example of a potential 4.5% state inheritance tax on any of the account value would be completely avoided.
- When the account owner dies, the beneficiary generally must provide a death certificate and satisfy any applicable institution requirements before assets are transferred. Because the assets transfer to a named beneficiary, the time and cost of probating the will are also avoided, as named beneficiary designations generally supersede the provisions of a will with respect to those assets. This applies not only to TOD accounts, but also to retirement plans, annuities and life insurance – really, any account to which you’ve added named beneficiary.
- Setting up an account as TOD does not give beneficiary access to the account until the passing of the account owner(s). Therefore, under current federal tax rules, changing an account to a TOD titling is not treated as a completed gift for gift tax purposes.
Also Consider a Financial Power of Attorney
As discussed, if a parent sets up an account as Transfer on Death (TOD), the beneficiaries have no access to the account while the owner(s) are still living. So, how does one plan for the event of being incapacitated?
A durable financial power of attorney is a powerful document which, in effect, allows one or more individuals to perform financial transactions on your behalf. Often, this document is drafted by a qualified attorney, which is an approach many individuals choose after consulting with qualified legal counsel. Many financial institutions have internal financial power of attorney forms, which will allow you to give someone financial power of attorney over your accounts at that specific institution without having to hire an attorney. Regardless of how you set it up, there are many situations in which granting financial power of attorney may be a more appropriate approach than adding someone as a joint owner to an account.
- There is no such thing as a joint retirement account. IRAs, 401(k)s, annuities, etc., can have only one owner, so it’s not even possible to make someone a joint owner. If a parent becomes incapacitated, they often want their child to have access to all their assets, not just their bank accounts.
- You can set up a successor in the event the original person you appoint is unable to serve. It’s always good to have a backup plan, and you can name a successor when you execute your power of attorney paperwork, or you can amend it later.
- You can give your financial power of attorney the ability to conduct real estate transactions on your behalf. For example, there are many situations where a child is helping an elderly parent sell their home or buy a new one, especially if the parent is experiencing cognitive issues. In this example, if the parent gave financial power of attorney to one or more of their children (while the parent was still healthy), they may be able to negotiate terms and act on their parent’s behalf, depending on applicable law and the authority granted in the power of attorney.
- If you are a current Trustee of a Trust, who is going to step in if you’re not able to make decisions? Depending on state law and the terms of the governing documents, a properly drafted financial power of attorney may provide authority for certain trust- related actions.
The Best of Both Worlds
For financial security, “in case something happens,” parents should carefully evaluate whether adding additional owners to their accounts is appropriate for their circumstances. Depending on their goals and circumstances, many individuals find that Transfer on Death designations and durable Financial Powers of Attorney offer an effective alternative. The TOD designation handles what happens when you pass, and the power of attorney handles what happens if you can’t manage things yourself. Doing both may help reduce the likelihood of unintended tax consequences, administrative complications, or family conflict and may provide an authorized individual with broader access to financial matters when it matters most.
Ideally, it will be a long time before, “something happens,” but we should all be proactive about planning for these unforeseen events. As you may have realized, the rules around these decisions are complex, so don’t go at it alone. Talk with your financial advisor, attorney, and tax professionals about your goals and circumstances before making ownership or estate-planning decisions.
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