A Common Estate Planning Mistake
Over the years, one of the most common mistakes we see clients make in planning the distribution of their assets once they have died is to make their child a joint owner of their assets (house, bank account, investment account, etc.). Someone along the way told them it would eliminate the need for probate and the asset is available to the child immediately after the parent’s passing. While this is true, it can also create problems:
Creditor attachment – Once the child is added to the asset, the child’s creditors can attach that asset if the child has financial problems. The common response to this is the parent’s assurance that their child is fiscally responsible and has no credit issues. However, accidents can happen to the best of us, and if the child is involved in an accident or engages in an activity for which liability attaches and the child does not have sufficient insurance coverage or other assets to cover, now the parent’s asset is at risk.
Moral conviction gives way to legal rights – This arises when a parent has multiple children and only makes one of them a joint owner of the asset even though the intention of the parent is that all of the children shall share the proceeds of the asset equally once the parent has passed (this also applies to making only one child a beneficiary of an asset). The parent places great confidence and trust in this one child and is certain that he or she will carry out the parent’s wishes. However, legally, after the parent dies, the asset becomes the sole and absolute property of that one child and he or she is under no legal obligation to share the asset with his or her siblings or to pay the debts of the parent with that asset.
Restricts parent’s ability to transfer the asset – Say the parent owns a house on a small lot and makes the child a joint owner of the property. A few years down the road, the parent wants to sell the house and move to a retirement community in Florida and do some traveling. The child doesn’t want the parent to move so far away and resists the move. With the child on the title to the house, the child can hold up the sale of the house and the parent would have to take legal action against the child just to be able to sell the house. In such cases, it is possible that the parent could have to share the sales proceeds with the child.
The goal in all of the above situations is typically to avoid probate and unnecessary cost. However, there are better ways to accomplish the same end result, but with less risk to the parent’s asset. Many of these ways are very affordable. Your attorney can advise you of the best course of action to accomplish your goals once he or she has visited with you and learns more about your assets, goals, and family dynamic.