Joint Ownership Isn’t a Substitute for Estate Planning

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Should you consider adding a joint owner to your assets to avoid probate?


Many parents put their children on their bank accounts or other assets for ease of management. If the child is on the account, they reason, the child can write checks for them and, when they die, the asset will avoid probate. The goal is understandable - parents want to make things easy for their children - but adding a child as a joint owner is almost always a bad idea and it’s no substitute for proper estate planning.


Joint ownership may seem easier when you do it, but it has many downsides that other estate planning strategies (powers of attorney, wills, and trusts) do not. (I’m going to use children in these examples, but the downsides hold no matter who you do this with, save a spouse.)


1) The joint owner owns the asset and can spend it.


If you put your child on your bank account, they can use the money without restriction. Yes, it might be convenient to have them on the account so that they can pay your bills for you if you’re incapacitated, but they can also use your money to pay their own bills. Any money you put into this account is also theirs. If you have a power of attorney, you can authorize your child to pay your bills for you. However, they wouldn't be part-owner of your money and could not use the money for their own benefit.


2) The asset is available to the child’s creditors.


Imagine this: you put your child or children on your house to avoid probate. Then disaster hits.


One of your children ends up going through a divorce. They partially own your home- and that ownership interest is up for division in their divorce. It’s open to their creditors in a bankruptcy or lawsuit. Suddenly you have to sell your house- the one you loved, lived in for years, and had finally paid off- because your child had some bad luck financially.


Joint ownership isn’t something to enter into lightly. It can have some serious consequences for your financial stability.


3) When you die, those assets belong to the child whose name is on them - and they don't have to share.


You might intend that your child shares whatever assets you leave them by joint ownership with their siblings. For example, say you put your eldest child on your house and on your bank account. When you die, she becomes the sole owner of the house and that bank account, and there is no legal requirement that she share those assets with her siblings. Furthermore, even if she does, having to gift the items to her siblings may result in tax consequences (such as having to file a gift tax return).


4) You need the joint owner’s permission to sell the asset.


Imagine putting your children on your home and needing them to consent when you decide to downsize. If they’re a joint owner, they will need to consent to any sale of the joint asset. They will also get a share of the sale price.


The convenience of joint ownership is generally not enough to overcome its downsides. With a properly drafted and personalized Power of Attorney and Last Will and Testament, you can authorize the person of your choice to manage your finances for you if you’re incapacitated and decide how your assets will be distributed after your death.

Disclaimer: This post is for general informational purposes and does not constitute legal advice. Individual situations may differ.

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