Joint Ownership: The Good, the Bad and the Ugly
Putting a child on your bank account can make life easier as you get older, and it can help your heirs avoid probate after you're gone. But it comes with some pretty severe downsides. In fact, a revocable trust may be a better move.
No matter how many people I meet with to create estate plans, undoubtedly we talk about how to avoid probate (having to go to court to get access to property when someone dies) and how to make sure your assets are accessible if you become incapacitated. A relatively simple way to accomplish both of those goals is to own assets jointly with another person. The joint owner is typically a spouse or an adult child.
Joint ownership can, however, have many implications, not all of which are good.
The Good
Establishing joint ownership of a financial account is relatively easy. Simply go to the bank with the person you want named as the joint owner and sign some paperwork. It’s easy to do, and you do not have to pay an attorney to help.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Once added, the joint owner becomes a legal owner of the property, and you both have the same rights to access and control the property. In addition, the joint owner will typically receive the property directly upon your death. This is known as a survivorship right. Even better is that the joint owner will be able to manage the account if you become incapacitated, or if you just want some help, for example, to pay your bills.
The Bad
Joint ownership can help with access if you become incapacitated and with avoiding probate if you die, but there are also some pitfalls to consider before adding someone’s name to property.
If your joint owner gets sued or divorced your account is potentially at risk. Because the joint owner’s name is on the account, you may have to prove the money is yours. Even then, it might not be possible to save the account from a creditor.
If the joint owner’s creditor issues are bad enough, he or she might declare bankruptcy to alleviate their debts. In this situation you might have to deal with a bankruptcy trustee attempting to access your account to pay off the debts.
The Ugly
Sometimes a joint owner’s direct actions can be the cause of the problem. A joint account owner has complete and unfettered access to the account and could withdraw all the assets from the account at any time. To you, the joint owner is taking out your assets without your approval — or stealing. From the bank’s point of view, however, an owner is making a withdrawal. For this reason, it is extremely important that you implicitly trust anyone you name as a joint owner.
The Ugliest
Joint ownership also has the potential to cause problems when it comes time to settle an estate. Because joint ownership brings with it right of survivorship, when one joint owner dies, the surviving joint owner immediately receives the property. Basically, the account belongs to the surviving joint owner.
Many people put an adult child’s name on account not because they want that one child to inherit the account to the exclusion of the other children, but because that one child lives close by or is the most helpful. This type of situation is known as joint ownership for convenience. Typically, if the arrangement is for convenience, the child whose name is on the account should not inherit to the exclusion of the other children. Rather, the account should pass as described in your will.
However, after you are gone, it may be difficult to know (or to prove) your intentions. The joint owner/child might say that you intended she inherit the account for all the help provided. The other children might expect to receive part of the account. If the account is large enough, the siblings might decide to fight about it and each hire an attorney. Even if they do not fight about it, resentments can be sown that will last for years or even longer.
It’s best to be careful, because your relatively easy and inexpensive solution of putting your children’s names on the account could result in family animosity and fighting for years to come. It’s possible to state in your will your intentions regarding the account — that it was established solely for convenience. However, most people fail to do so.
What to do?
The solution to these issues is to work with a qualified estate planning attorney to create an estate plan to accomplish all your goals. Revocable trusts can be an excellent way of avoiding probate. A trust gives someone access to assets if you become incapacitated, and then fairly divides the assets in an inheritance. Yes, trusts are more expensive to implement than going to the bank and adding a name on an account. They also require you to work with a good attorney.
Consider a good estate plan like a good investment or an insurance policy — you spend some time and money setting it up, and the dividends in the form of cost saving and family harmony are reaped later when you become incapacitated or die. Moreover, your family will reap the benefits for decades to come.
Tracy A. Craig is a partner and chair of Seder & Chandler's Trusts and Estates Group. She focuses her practice on estate planning, estate administration, prenuptial agreements, guardianships and conservatorships, elder law and charitable giving. She works with individuals in all areas of estate and gift tax planning, from testamentary estate planning and business succession planning to sophisticated lifetime leveraged gifting techniques, such as grantor retained annuity trusts (GRATs), intentionally defective grantor trusts, family limited liability companies and qualified personal residence trusts (QPRTs). Tracy serves in various fiduciary capacities, including trustee and personal representative (formerly known as executor). She also works with clients on issues facing elders.
-
Use An iPhone? You May Be Hearing From A Class-Action Lawsuit Group
A handful of suits against the iPhone maker seek to crack down on everything from app store purchases to messaging.
By Keerthi Vedantam Published
-
Capital One/Discover: What's In Their Wallet For You?
Push back on Capital One's planned merger with Discover is growing with one group of consumer advocates calling for a public hearing.
By Keerthi Vedantam Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Three Big Ways That Life Insurance Can Be a Lifeline
Life insurance not only provides a safety net for loved ones and leaves behind a lasting legacy, but the cash value can also help during financial hardship.
By Steve Sugumele Published
-
Romance Scams That Target Older Adults Rising: What to Do
Here are some tips to help you avoid falling for a scam, especially when a scammer tries to prey on your affection.
By Patrick M. Simasko, J.D. Published
-
Lessons Learned From Britney Spears’ Financial Conservatorship
The pop star’s recent memoir reveals the toll her involuntary conservatorship took on her and spotlights the drawbacks of these legal arrangements.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
Four Things to Know About Managing a Loved One’s Finances
Figuring out when it’s time and knowing how to talk about it are just the start. You also need info about estate plans, insurance and health care decisions.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Can Language Apps Teach You to Speak a Foreign Language?
Your expectations might be too high if you think an online language platform can teach you to have a meaningful conversation in a foreign language.
By H. Dennis Beaver, Esq. Published
-
Avoid Surprises: Don’t Procrastinate on Your Taxes
You really should start thinking about next year’s taxes immediately after filing this year’s. Better tax efficiency could save you some serious dough.
By Jared Elson, Investment Adviser Published
-
How Gig Workers Can Prepare Their Estate and Financial Plans
Freelancers have to be vigilant to keep track of where their money goes, whether it’s to cover daily necessities, saving for retirement or other expenses.
By David Handler, J.D. Published