Top 4 Reasons to Beware of Joint Ownership between a parent and child
One of the most common estate planning mistakes that people make is 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. Parents typically add their child to their assets to help with bill paying, as a will-substitute to avoid probate in court. They also do this to help elderly loved ones who need assistance managing his or her assets.
To help illustrate the problems that can arise with this, we’ll put the scenario into perspective and discuss an elderly man, Dad, and his daughter, Sarah. Let’s say that Dad adds Sarah’s name as a joint owner on his checking and savings accounts, brokerage account, and his condo. While this may sound harmless, let’s list the reasons why you should beware the mistakes that could be made in a joint ownership.
1. Borrowing – What if Sarah is financially struggling? Knowing that she has full access to Dad’s checking and savings accounts can be extremely tempting.
2. Bankruptcy – What if Sarah 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 estate can try to claim some or all of his assets too.
3. Divorce – What if Sarah 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 Sarah’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.
4. Sharing with siblings – What if Dad passed away and Sarah’s brothers and sisters want a piece of Dad’s estate? Because Sarah’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.
Who knew having a joint account could create so many issues. Most parents think that they are doing their child a favor, but they could potentially be hurting themselves in the long run. That is why good estate planning is important; it can help you avoid any future financial complications.