Advertisement
retirement

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement - Article continues below

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.

Advertisement - Article continues below

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.

Advertisement

About the Author

Tracy Craig, Fellow, ACTEC, AEP®

Partner and Chair of Trusts and Estates Group, Mirick O'Connell

Estate attorney Tracy Craig is a partner and chair of Mirick O'Connell's Trusts and Estates Group. She focuses on estate planning, estate administration, prenuptial agreements, tax-exempt organizations, guardianships and conservatorships and elder law. Craig is a Fellow of the American College of Trust and Estate Counsel and an AEP®. She has received an AV® Preeminent Peer Review Rating by Martindale-Hubbell, the highest rating available for legal ability and professional ethics.

 

Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump has issued an executive order to suspend the collection of payroll taxes. How much will it save you?
August 9, 2020
What a Payroll Tax Cut Would Mean for You
Tax Breaks

What a Payroll Tax Cut Would Mean for You

If Congress can't pass another stimulus bill, President Trump says he will initiate a payroll tax cut by executive order. How much would that save you…
August 8, 2020
7 Surprisingly Valuable Assets for a Happy Retirement
happy retirement

7 Surprisingly Valuable Assets for a Happy Retirement

If you want a long and fulfilling retirement, you need more than money. Here are the most valuable retirement assets to have (besides money), and how …
August 3, 2020

Recommended

6 Money-Smart Ways to Spend Your Stimulus Check
Tax Breaks

6 Money-Smart Ways to Spend Your Stimulus Check

If you don't have to use your stimulus check for basic necessities, consider putting the money to work for you. You'll thank yourself later.
July 30, 2020
Emergency Funds: How to Get Started
Making Your Money Last

Emergency Funds: How to Get Started

There’s no one-size-fits-all formula for how much you’ll need.
July 30, 2020
These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary
estate planning

These 2 Words Could Send Your Retirement Money to the Wrong Beneficiary

"Per stirpes" vs. "per capita." Making the wrong choice could cause an estate planning disaster.
July 30, 2020
The Finances of Homeschooling Your Kids: What It Costs, Tax Breaks, More
spending

The Finances of Homeschooling Your Kids: What It Costs, Tax Breaks, More

If you're contemplating homeschooling for the 2020-2021 school year and beyond, consider these 10 things -- from surprising homeschooling costs to pot…
July 30, 2020