Estate planning can be daunting. Once you get past the fact that your very mortality (and morbidity) is the triggering event, estate planning means making a tally of all you own and (in fact more importantly) how you own it. Yes, there are many degrees of ownership and each can make for some difficult wrinkles.
One common phenomenon is joint ownership between generations (parent and child or grandchild). Not only is it common, but it can make for some unintended problems. Forbes recently ran a piece on some of these problems and the five reasons to avoid such ownership form. Let’s review some of the high points, but I would recommend reading the full article.
Joint ownership oftentimes is an attempt to simplify things, or at least that is why people use it as a means of holding title. Perhaps they want to simplify practical day-to-day financial management. Aging parents needing such help may add an adult child’s name to a bank account or investment, either for direct aid or for just assisting in managing the accounts or assets. Likewise, it could be done as an attempt to avoid probate. Adding the adult child’s name to the account, investment, or real estate as a form of will-substitute (a so-called “poor man’s will”). Of course, these are only simple solutions, and although it may actually work if things go off without a hitch, they could also lead to disaster.
One problem to remember is joint-ownership is a two-way street. That means that adult child joint owner has equal ownership rights to the assets and so do any of that adult child’s financial predators. The adult child may have their own creditors that they owe money to, may be facing a bitter divorce, or may be sued for damages in civil court. In addition, while no parent would anticipate it, the adult child may use the jointly owned bank account for a “quick loan” when they are running a little short of cash. Any of these unintended consequences can not only jeopardize the financial independence of an aging parent, but can cause hard feeling among other adult children who may (or may not) be joint owners with their parent.
Another problem, especially from an estate planning perspective, is that joint ownership as a stop-gap or a will-substitute is not really estate planning and may run afoul of the parent’s actual estate distribution wishes. For example, the adult child who has joint ownership doesn’t have to share such assets upon the parent’s death. As you can imagine, it is very easy for such cases to spill over into family squabbles and even prolonged court-cases.
Sometimes joint ownership seems like a good idea and a quick fix to avoid probate. And, sometimes it is. But, before you go out and title all of your assets in joint name, consider the drawbacks.
In the end, an estate planning attorney can help you determine whether joint ownership is appropriate under your unique circumstances. Remember: Look before you leap. The protection of your assets and family relationships are at stake.
If you enjoyed this article and would like more information on estate planning or forms of ownership be sure to check back here for future blog posts, or sign up for our free monthly e-mail newsletter. You can also contact us for an appointment at your convenience.