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.