Five Problems with Joint Ownership
There is nothing wrong with joint ownership. Between married couples it is the most common form of holding title to assets. It’s simple, quick, and avoids probate. But, joint ownership has problems that you need to understand before you decide if it is right for your particular situation, especially a multi-generational one.
A common plan is for an elder parent to add a child’s name to a bank account, or on a deed to real estate. This is easy to do and allows the child access to a bank account for bill paying and passes an asset to a child without probate upon the elder’s death. But, the problems with this can be significant. Here a five things that could go wrong:
1. Creditors – The child may have creditors, file for bankruptcy, or get sued (for a car accident or whatever). If that happens, the money in a joint account belongs to the child as much as to the parent, and creditors can get at that money and take it away from the parent. That is a very bad result of joint ownership.
2. Divorce – What if the child is married and then a break-up happens? The child’s spouse might have a claim on half of the child’s assets – including some of those joint assets. The divorcing spouse could hold up a sale of the parent’s real estate and tie up money until the matter is settled.
3. Dishonesty – What if the child has a financial problem and needs cash? Will the child take some out of the parent’s account? Maybe the child will just want to “borrow” it for a little while. But, will the child pay it back? This isn’t what the parent intended, but it could happen.
4. Estate Planning and Siblings – Joint ownership means that a surviving joint owner owns the entirety of that asset. With one child this isn’t a problem, but in a larger family, if only one child’s name is on the asset, will it cause a fight? The surviving child is the full owner of that asset. Will he share with his siblings, or claim it is all his money? Did the parent intend for the joint-owner child to get the entirety of that account? Will the siblings believe that even if it is true? This can create nasty family fights, no matter what.
5. Death of the Child – The plan may be that the parent’s money or property could be handled by the child during life and would pass to the child upon the death of the parent, without probate. But what if the child died first? The joint property would be solely owned by the parent. It would have to go through probate in order to get to the rightful heirs, which would be determined by a Will or by the law of the State. This might create quite an unintended consequence if a Will was written with consideration of the jointly owned property passing to a surviving child.
When you add someone’s name to your bank accounts, investments, real estate, or any other asset, you are risking complications that you might not even imagine. It is better to use proper Life & Estate Planning including a well-drafted Will, a Trust (if applicable) and a Durable Power of Attorney for financial matters. Sometimes joint ownership is appropriate, but you must consider the complications and decide if it is the right thing for you. If you have any questions, consult your Elder Law Attorney.
Attorney Edward Adamsky is an Elder Law Attorney with an office in Tyngsboro, Massachusetts. He serves clients from New Hampshire and Massachusetts. You can read his column in the Merrimack Journal Magazine published in Dracut, Massachusetts.