06 Mar Sharing a bank account with a minor

Q. I want to start a bank account with my minor granddaughter in Delaware with her as co-owner of the account, rather than Payable-on-Death (POD). I don’t want her to know about it until she is 18 or older (unless I pass, of course). I know her Social Security number but I want to pay all income taxes on any interest that is accruing. Are there any pitfalls or problems with this?
— Grandma

A. Your plan does have pitfalls and problems.

The arrangement might result in the account passing to your granddaughter when she’s a minor, said David Ritter, chair of the tax practice at Brach Eichler in Roseland.

“It would create complications as a minor is not enabled to accept title of inherited assets,” Ritter said.

If possible with the bank, it would be best to name a custodian for the minor on the account as the POD, he said.

“The income on the account is reportable by the owner and not by the POD beneficiary,” Ritter said. “The Social Security number of the owner, not the beneficiary, would be used on the account.”

Ritter said the owner of the account may close the account at any time, and the POD beneficiary on the account has no rights to the account so long as the owner is alive.

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This post was first published in March 2018.