A very common estate planning mistake is to maintain joint ownership between a parent and their child. We don’t mean a joint checking account; we’re talking about when a child’s name is added to a parent’s asset, such as real estate.
Why would you do this, you ask? Parents typically add their child to their assets to help pay bills or to avoid probate. Client also do this to help elderly loved ones who need assistance managing their assets.
We recommend against this practice, and we’ll illustrate why. Let us put the scenario into perspective and discuss an elderly man, Dad, and his daughter, Suzy. Let’s say that Dad adds Suzy’s name as a joint owner on his checking and savings accounts, brokerage account, and his condo.
- Borrowing – What if Suzy is financially struggling? Knowing that she has full access to Dad’s checking and savings accounts can be extremely tempting.
- Bankruptcy – What if Suzy couldn’t get out of her financial situation and ends up filing for bankruptcy? Because she has a joint account with her father the bankruptcy can claim some or all of his assets too.
- Divorce – What if Suzy filed for divorce from her spouse and her spouse claimed the joint assets as part of the marital estate during the divorce? All the while Dad wants to sell his condo. This ultimately means that Suzy’s soon to be ex-husband will have to sign off on the sale or mortgage, even though his name isn’t on the real estate.
- Sharing with siblings – What if Dad passed away and Suzy’s brothers and sisters want a piece of Dad’s estate? Because Suzy’s name is on everything and the siblings’ names aren’t, under the law she is the surviving joint owner, thus she gets to keep everything. This can and has definitely led to a family court fight.