If I had a dollar for every time someone told me that they don’t need to worry about a Will or a Living Trust because they have made their children joint owners of their home or other assets, it would be a tidy sum!
While it often makes sense for spouses to hold their marital home in joint tenancy, naming your children as joint owners of your assets is almost always asking for trouble – in many ways.
“Oops, I didn’t realize that I was giving my child’s creditors access to my money or property.”
That’s right. When you add someone to your real estate title or to your account or other asset as a joint owner, you are giving that person a present interest in the property. This means that the person, for this example your child, is immediately entitled to their interest in the asset. Your child will not likely take what is not at that time intended for them to have. But if the child is sued, or has to file a bankruptcy, or has a tax lien, the law says that the creditor or bankruptcy trustee or taxman CAN get at the child’s interest in your property. And there is little that you can do at that point to stop them.
It doesn’t matter how highly you regard your child and how very responsible you believe them to be. All you have to do is consider that the child may have an uninsured or underinsured motorist claim, or sign a personal guaranty of a business debt that goes bad, or fail to pay their taxes, or a myriad of other situations.
A better option? Discuss with your Estate Planning Attorney if one of the following is a better fit for you: Naming your child your power of attorney, so that they can take actions for you in the event that you cannot do so yourself; add the child as a payable-on-death beneficiary to your account; use a Transfer On Death Instrument to pass real property interests to your child or other beneficiaries; or, put your assets into a living, revocable trust and make the child the successor trustee.
Good intentions just won’t cut it. There is no “good intention” exception under the law when a child’s creditor comes knocking at your door to collect the child’s interest in your property.
And if that isn’t scary, consider that even if the child’s creditor doesn’t come after your asset, the use of the wrong method to pass your property could result in a serious tax hit. That’s right. Ask your accountant. They will tell you that there are certain advantages of passing property via correctly created estate planning tools, and that the lifetime transfer to a child of a joint ownership interest in your property may limit or destroy these positive tax attributes.
The team at Marc D Sherman & Colleagues PC is available for your questions. Reach out to set up a consultation.