Hello;
What are the consequences of adding your children to the title of your house or an investment account? Adding a child or moving real estate to joint ownership is a popular tactic for people to avoid probate. People do this to bypass the estate and the holdings will not be subject to probate. You have to be careful as joint ownership opens up potential issues.1 (What is Probate, How to Avoid Fees, and should you even try? By Robb Engen, Jason Pereira 7-Jul-2023)
Risks to think about
- You lose full control over the property. Now another party has the right to decide how those assets can be used
- The asset is now exposed to the liabilities of the new owner. If you add your child as joint owner and they have creditors come after them they will try to come after the asset.
- Family law issues: The asset is now exposed to the spouse of the new owner. Add your child and if they get divorced, the spouse could come after it.
- Estate issues. You can no longer control the distribution of that asset via a will. The asset is inherited by the joint owner, but the tax bill is the responsibility of the estate. If the will is not drafted accordingly, and there is more than enough money to pay the tax bill in the estate, then that joint owner could try to “manipulate” the other beneficiaries by keeping the asset and giving them with the bill. This likely would not be held up in court, but it could be tried.
- Elder Abuse issues: There is a lot of case law where the children that were added to joint accounts used the assets for personal use and made the original owner worse off.
The solution
- Executing an estate can be a lengthy process, but in many cases it’s better to pay probate to ensure your money goes where you want it to, and you can minimize or negate the chance of family conflict or abuse.
- Get proper legal advice before you start adding children as joint owners and beneficiaries of assets and accounts
- Put together proper documentation declaring your intentions behind these actions. Don’t leave important matters up for interpretation.
Sincerely,
Mike Busby (31-Jul-24)
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