Q. My wife and I are thinking of adding our son and daughter to our bank accounts. What is the best way to do this and how should we title the accounts?
A. Good question. The manner in which you add your children to your accounts will affect their rights of ownership, access to the funds, survivorship, and exposure of the accounts to their unpaid creditors. Here are the most common forms of title and the legal significance of each:
Joint Tenancy: If you add your children as “Joint Tenants with Right of Survivorship ” (“JT WROS”), then all four of you become co-owners and any of you may withdraw funds without restriction. For that same reason, the account(s) would then be fully exposed to your children’s unpaid creditors, including a spouse in a divorce. Unique to this form of title, the joint tenant who survives all of the others becomes the owner of the entire remaining balance. I sometimes think of this as the “last man standing” rule. Banks sometimes use the word “or” between co-owners’ names to signify joint tenancy.
Tenants in Common (“TIC”): Under this form of title, each person has the right to withdraw funds, but only up to that person’s proportionate share. Likewise, the monies in the accounts would be exposed to your children’s unpaid creditors, but probably subject to the same proportionate limitation. However, unlike joint tenancy, the TIC form of ownership does not leave everything to the last surviving co-tenant; rather, upon the death of any co-tenant, his share would go to his own heirs or beneficiaries, presumably that child’s own family. Banks sometimes use the word “and” between co-owners’ names to signify TIC co-ownership.
Pay on Death Beneficiary (“POD”): You could add your children merely as your “Pay on Death Beneficiaries”, meaning that they only acquire rights to the account upon the deaths of you and your wife. During your lifetimes, your children would have no access to the funds and no right of ownership. By the same token, neither would their unpaid creditors. Further, you could change this designation anytime during your lifetimes.
Agent: You could add them to your accounts only as your agent (aka “Attorney-In-Fact”) pursuant to a Power of Attorney (“POA”). As your agent, they would have a fiduciary duty to use the funds only for your benefit, not for their own. Since they would then have no ownership rights, the funds would not be exposed to their unpaid creditors. Upon the deaths of you and your wife, their agency powers would automatically terminate. At that time, the remaining monies would go to your own beneficiaries as directed in your will. Note: banks sometimes balk at naming more than one primary agent on an account, so you may have to choose one of your children for this role.
“Mix and Match”: You could mix-and-match the various forms of holding title in order to accomplish your goals. Example #1: you could leave the accounts in the names of you and your wife, only, but also provide that your children are your POD beneficiaries. Example #2: you could go with the features in Example #1, but also add one of your children as your “Attorney-in-Fact” so he/she can access the funds for your benefit.
So, when adding your children to your accounts, give thought to what you are trying to achieve and your tolerance for risk, and re-title the accounts accordingly.