Many times, as parents get older they feel that they need to add a child
as a joint owner on their financial accounts. They do this for many reasons.
Some feel that it is the best way to plan for emergencies. If they have
added a child as a joint owner, then if something happens to them, the
child can access the accounts and pay their bills. Others put a child
on an account as a joint owner because they want to avoid probate. However,
putting a joint owner on an account isn’t always the best way to
plan for emergencies or avoid probate.
For emergency purposes, a durable power of attorney is a good alternative
to joint ownership. The agent under the durable power of attorney has
the emergency access to financial accounts that the parent desires without
the downside that comes with joint ownership. What is the down side to
joint ownership? The downside mostly involves potential creditor and divorce issues.
For example, if your child is on your financial accounts with you and that
child’s marriage heads towards divorce, because your child is a
co-owner of your accounts, those accounts could come into play as potential
marital assets. Likewise, if your child has a car accident and is sued,
then because your child is a co-owner of your accounts, those accounts
could come into play as potential assets to be attached in the lawsuit.
As for probate, having your child as a joint owner on your financial accounts
does avoid probate however, joint ownership may lead to unexpected asset
distribution results for your family. For example, let’s say you
have three children and your intentions are that your assets will be divided
evenly between your three children. In fact, that is what you have said
you want in your will. However, your will doesn’t control joint
accounts. When you die, the child who is the joint owner of the accounts
becomes the sole owner of the accounts. The child who now solely owns
your financial accounts may decide to carry out your wishes and share
them with his or her siblings but, if that is done, then the owner child
has potential gift tax issues to consider.
So, although a joint account with your child may seem like a good option,
it is not always the best option. There are multiple ways to accomplish
most planning goals. Your estate planning attorney can help you evaluate
the pros and cons of each option and put the plan in place that accomplishes
your goals in the way that is best for you.