BEWARE: JOINT ACCOUNTS WITH YOUR CHILDREN CAN BE TRICKY!
Good estate planning should account for every possibility both prior to death and as a result of death. For example, what happens if the father dies first and mom is in a coma; what happens if both parents die at the same time, and then the minor children die; or just one parent plus the kids die or one child dies before the parent? There are all sorts of terrible tragedies and bad estate planning will compound any tragedy for a family.
There are advantages to having your children as joint owners of investment and bank accounts, as well as, real estate deeds. One advantage is on the death of one of the joint owners, the account or property automatically passes to the other joint owner thus avoiding probate and delay in access to the accounts. Additionally, in the event the parent becomes ill, suffers from dementia or incapacity, the child as joint owner would be able to pay bills and manage investments. Often the addition of children to bank accounts and real estate is for convenience, however the exposure to liability has greatly increased, with the addition of their name to the account.
There are several disadvantages to joint ownership in financial accounts and real estate property. First, the money in a joint account is now owned equally by the parent and child which means the child can draw out the entire balance of the account at any time for any reason. As much as parents trust children, circumstances in life may arise where the child uses the money in an unintended way, thereby putting their parent at risk.
Another disadvantage, includes creditors of all joint owners have access to these funds held in these accounts, as well as, the ability to place liens on real estate property jointly held. Therefore, putting a child’s name on a deed potentially opens your property, investment and bank accounts up to all current and future creditors of a child, including bankruptcy.
Another obstacle with joint ownership is how a parent intends to distribute the inheritance to their children after their death. If there is only one child and the parent’s desire is for the child to inherit everything, then joint accounts and joint ownership in real property would allow for easy transition of property and asset management. However, still taking into consideration the risk of your child’s creditor’s having access to these accounts and property while the parent is still alive. But if there are multiple children that a parent wants to inherit their estate equally, then you would have to put the children equally on all the accounts and property, again increasing the overall exposure to liability for the asset. The parent would need to be vigilant to ensure that each account is equal and this is next to impossible when you factor in unexpected future healthcare and long term care costs.
Therefore, planning for the unexpected, minimizing risk to seniors for their care needs and asset management and distribution is best done by utilizing a wide variety of planning tools such as durable powers of attorney, a revocable living trust, last will and testament and financial planning. Relying on joint ownership of property and assets by adding a child’s name to a deed, investment and banking accounts has limited advantages, increased risk and unexpected consequences of final distribution. Consulting with an Elder Law Attorney to assist in future planning for the unexpected is the best way to preserve your current and future assets.
AgeSmart would like to Thank Anita Ewing for this weeks blog. Anita Ewing is an attorney with Harter, Larson & Dodd LLC whose offices are in Belleville and Mascoutah. The firm has an emphasis on intergenerational estate planning for people of all ages, and for the concerns of elders, those with special needs, and their families. This article is for information only and is not to serve as legal advice.