Parents often wish to put their children on their bank accounts and investment accounts for estate and disability planning purposes. Doing so is fraught with problems, as the child now becomes the legal owner of the account(s). Often overlooked is that by adding a child or children as joint owners on assets, one is making a taxable gift, which must be reported to the government. While not likely to trigger an immediate gift tax, unless the amount of the gift exceeds the unified credit for estate and gift taxes, if the amount is over $15,000 (the gift tax exclusion for 2019), a gift tax return is required to be filed and one’s lifetime credit for estate/gift taxes is reduced by the amount of the gift. Even changing the ownership of one’s life insurance policy, to make one’s children the owner, is a gift to the extent of the cash value of the policy.
Making a child or children owners of one’s assets also subjects the assets to claims of the child’s creditors, if any. Additionally, if the child becomes involved in a divorce proceeding, the child’s spouse can claim a portion of that ownership interest as being subject to equitable distribution.
Also not uncommon is that a parent will put one child’s name on an asset, either as an owner or as a beneficiary, with the intent that when the parent passes away, the child will share the asset with his or her siblings. Of course, if that child passes away, becomes disabled, or is involved in a divorce proceeding, the asset is at risk and the siblings may never see that money. One factor that is usually overlooked completely is that when the child later shares the asset with his or her siblings, he or she is making a taxable gift, which must be reported, and is likely to have an adverse effect on that child’s lifetime credit for estate/gift tax.
What is the solution to all this? One simple solution is to not make any of one’s children owners of one’s assets, whether joint or alone, but to name the child as a