April’s blog post discussed what happens when the surviving spouse is not on a deed. In terms of inheritance, a spouse should always be on the deed to avoid probate or an unintentional disinheritance. One might assume then, that adding your adult children to the deed would then do the same thing, right? After all, your adult children will inherit the home after you and your spouse are deceased. Unfortunately no. Joint ownership with your adult children can be a tricky and should be carefully considered.
Is Joint Ownership of Assets With An Adult Child A Good Idea?
Once deceased, an asset in joint ownership passes directly to the surviving joint owner. Let’s consider the following scenario. It could be the main home, a vacation home or any jointly owned asset.
A couple has several adult children. One lives nearby and helps maintain the property, mows weekly, helps pay bills, etc. The other adult children are much further away and can not help out. It seems obvious that the adult child living nearby should be added as joint owner to avoid probate. Overall intentions however, are that assets are divided equally upon death. In the case of joint ownership with one adult child however, the deed will pass directly to that joint owner, potentially bypassing any other adult children.
Let’s consider that instead the couple decides to add all adult children as joint owners. This will keep the assets out of probate, but challenges arise if creditor claims come up.
- Legal trouble for one or any of your adult children. Assets in joint ownership may be claimed to satisfy damages in a lawsuit.
- Divorce scenarios where the spouse is entitled to half of all the assets, including any properties in joint ownership.
- Any automobile accident, or personal liability lawsuit for damages. Those joint assets can be used.
- Consider anyone filing for bankruptcy. Those joint assets can be used too.
There is greater liability in the joint ownership of assets with adult children or anyone other than a spouse. Any asset in joint ownership is subject to creditor claims whether that is real estate, bank accounts or assets.
Be Clear in Your Wishes
As an estate planning strategy, it is not typically the best advice to establish that joint ownership. If you do choose to have joint ownership with your adult children though, it is important to be clear and specific on your wishes. A clearly written document, which captures your intentions in transferring those assets in joint ownership, is a good practice.
- Is the asset a gift for personal use?
- Is one joint owner merely holding the assets as a way to avoid probate fees?
- What can you spell out legally?
Passing away without clear intentions with respect to jointly-held assets, can potentially cause disputes between the adult child who has become sole owner. Family disputes regarding assets are already all too common. Assets are best distributed in accordance with the deceased parent’s Will. Assuming the intention is to share assets among all adult children equally, it is best to consider trust based estate planning instead. Please consider the risks carefully.