Putting a child on your bank account can make life easier as you get older, and it can help your heirs avoid probate after you’re gone. But it comes with some pretty severe downsides. In fact, a revocable trust may be a better move.
By: Jedediah McClure, JD
Key Points
- Avoiding Probate: Joint ownership can help avoid probate, ensuring quick access to assets.
- Accessibility: Joint ownership allows another person to manage your assets if you become incapacitated.
- Risks: Joint ownership can expose your assets to the joint owner’s creditors and personal issues.
Important Definitions
- Joint Ownership: A legal arrangement where two or more people share ownership of an asset.
- Right of Survivorship: A feature of joint ownership where the surviving owner automatically receives the deceased owner’s share.
- Revocable Trust: A trust that can be altered or revoked by the grantor during their lifetime, providing flexibility and control.
The Good
Establishing joint ownership of a financial account is relatively easy. Simply go to the bank with the person you want named as the joint owner and sign some paperwork. It’s easy to do, and you do not have to pay an attorney to help.
Once added, the joint owner becomes a legal owner of the property, and you both have the same rights to access and control the property. In addition, the joint owner will typically receive the property directly upon your death. This is known as a survivorship right. Even better is that the joint owner will be able to manage the account if you become incapacitated, or if you just want some help, for example, to pay your bills.
The Bad
Joint ownership can help with access if you become incapacitated and with avoiding probate if you die, but there are also some pitfalls to consider before adding someone’s name to property.
If your joint owner gets sued or divorced, your account is potentially at risk. Because the joint owner’s name is on the account, you may have to prove the money is yours. Even then, it might not be possible to save the account from a creditor.
If the joint owner’s creditor issues are bad enough, he or she might declare bankruptcy to alleviate their debts. In this situation, you might have to deal with a bankruptcy trustee attempting to access your account to pay off the debts.
The Ugly
Sometimes a joint owner’s direct actions can be the cause of the problem. A joint account owner has complete and unfettered access to the account and could withdraw all the assets from the account at any time. To you, the joint owner is taking out your assets without your approval — or stealing. From the bank’s point of view, however, an owner is making a withdrawal. For this reason, it is extremely important that you implicitly trust anyone you name as a joint owner.
The Ugliest
Joint ownership also has the potential to cause problems when it comes time to settle an estate. Because joint ownership brings with it right of survivorship, when one joint owner dies, the surviving joint owner immediately receives the property. Basically, the account belongs to the surviving joint owner.
Many people put an adult child’s name on an account not because they want that one child to inherit the account to the exclusion of the other children, but because that one child lives close by or is the most helpful. This type of situation is known as joint ownership for convenience. Typically, if the arrangement is for convenience, the child whose name is on the account should not inherit to the exclusion of the other children. Rather, the account should pass as described in your will.
Alternatives to Joint Ownership
Given the potential risks and complications of joint ownership, you may want to consider alternatives like a revocable trust. A revocable trust can provide the same benefits of avoiding probate and ensuring asset management in case of incapacitation, without exposing your assets to the same level of risk.
Benefits of a Revocable Trust
- Control: You retain full control over the assets during your lifetime.
- Flexibility: The trust can be amended or revoked as your circumstances change.
- Protection: Assets in the trust are protected from the beneficiaries’ creditors.
- Privacy: A trust does not go through probate, keeping your affairs private.
Frequently Asked Questions (FAQs)
Q: What is joint ownership and how does it work?
A: Joint ownership is a legal arrangement where two or more people share ownership of an asset. Both owners have equal rights to the asset and can access or manage it. Upon the death of one owner, the surviving owner automatically inherits the deceased owner’s share, bypassing probate.
Q: What are the risks of joint ownership?
A: Joint ownership can expose your assets to the joint owner’s creditors, legal issues, and personal problems. If the joint owner is sued, divorced, or declares bankruptcy, your assets could be at risk. Additionally, the joint owner has complete access to the assets and could withdraw them without your permission.
Q: How can a revocable trust be a better alternative to joint ownership?
A: A revocable trust allows you to retain control over your assets while avoiding probate and protecting your assets from the beneficiaries’ creditors. It provides flexibility to amend or revoke the trust as circumstances change, and it keeps your estate private.
Q: Can joint ownership affect my estate plan?
A: Yes, joint ownership can complicate your estate plan. If a joint owner inherits an account through right of survivorship, it may bypass the provisions in your will. This can lead to disputes among your heirs if the account was intended to be shared among multiple beneficiaries.
Q: How can I ensure my estate plan aligns with my wishes?
A: Regularly review and update your estate plan to ensure it reflects your current wishes. Consider alternatives to joint ownership, such as a revocable trust, to provide better control and protection of your assets. Consult with an estate planning attorney to create a comprehensive plan tailored to your needs.
Take Action Now
If you’re considering joint ownership or looking for better estate planning options, consult with an experienced estate planning attorney. At Supernus Law, we specialize in creating comprehensive estate plans that meet your unique needs and protect your assets.
Contact Information:
- Phone: (618) 354-0302
- Email: jed@supernuslaw.com
- Website: Supernus Law Website
Don’t let the complexities of joint ownership and probate jeopardize your family’s future. Let’s work together to secure your legacy and provide peace of mind for you and your loved ones.
