Estate Planning Mistake Of Naming Your Kids Jointly To Assets Or Accounts

One of the biggest mistakes in Estate Planning is naming kids or love ones as joint owners of assets or properties. One of the big reasons we hear is to avoid probate. But there’s a problem with this. Attorney Chris Berry discusses the problems with this in this episode of Daily Wisdom.

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Episode Transcript


Joint Ownership of Assets or Property

Hi, this is Chris Berry with Castle Wealth Group. Today, we’re going to talk about the estate planning mistake of naming your kids jointly to assets or accounts. And this is a big one. And if you like this information, please make sure to subscribe to our YouTube channel.

Christopher Berry is a leading Estate Attorney and Advisor in the area of Retirement and Legacy Planning. He has been featured in publications, such as Forbes, Kiplinger’s, Crain’s Detroit and more. He’s the host of the weekly radio show and podcast, The Chris Berry Show. He’s a national thought leader, as it relates to Retirement and Legacy Planning and has authored the Amazon best selling book, The Caregiver’s Legal Guide.

So one of the biggest mistakes we see, and we see this all the time, is naming kids or loved ones as joint owners of assets or property. And one of the big reasons we hear is, to avoid probate, because when someone passes away, there’s four ways assets transfer, Joint Ownership, Beneficiary Designation, Trust, and then Probate. So we want to avoid Probate. So we name our kids jointly to that bank account, to that piece of real estate. Well, what’s the problem with this? Well, there’s lots of problems.



First, by naming someone jointly to that account or asset, you’re opening yourself up to all of the potential liabilities of that person. So if you were to name your son or daughter joint to your home and they get divorced, lawsuit, creditor action, bankruptcy, you might lose that home. In fact, in my practice, I had a client. Prior to us working together, she had named her daughter joint to her home. Her daughter needed long-term care and Medicaid, and now they wanted mom to sell her home because she had named daughter joint to that property. So by naming someone jointly, you’re opening yourself up to all of the potential liabilities of that person. So that’s a big no-no because we want to protect your assets.

Second reason joint ownership is a problem is, by naming someone jointly, they’re a joint owner. They can do whatever they want with that. So if you were to name a child joint or a loved one joint to your checking account or investment account, theoretically, they could just drain that whole account, take all the money and be done with it. And you would have no recourse.

Third reason is that from a tax standpoint, this gets a little complicated, but understand, from a tax standpoint, naming someone jointly and then you passing away is not the most efficient way from a tax perspective to pass assets because you miss out on what’s called Step-up in Basis. Let’s say you buy a home for a $100,000, it grows to 200,000, you pass away and then the kids sell it for 210, they get a Step-up in Basis where the basis isn’t the 100 to 210 for capital gains, it’s from the 200 to 210 because they get a Step-up in Basis upon your death. But if you’re to name someone jointly and you pass away, they don’t get the Step-up in Basis. Now, it’s valued at a 100,000, they sell it for 210. Now they have a $110,000 worth of taxes and gains that they have to account for. Instead, we might want to look at things like Ladybird Deeds, or Beneficiary Designations as a way to pass those assets.

Now, another reason I see people name someone jointly, especially to bank accounts, is that, “Well, if I get a knock on my head, or I want someone to help me pay my bills” and that type of thing. Well, that’s where a well drafted immediate financial Power of Attorney comes into play, where you could appoint your son or daughter or anyone else that you would want as a Power of Attorney and they owe you a fiduciary responsibility to act in your best behalf. Meaning now they could pay your bills, write checks, et cetera, and not as a joint owner where they could liquidate your whole account, they don’t owe you any fiduciary responsibility, but as a Power of Attorney, they owe you a fiduciary responsibility to act in your best behalf.

So, that’s the way that we could appoint someone to your checking account, not as a joint owner, but as a financial Power of Attorney, to be able to write checks. And then we would just name them as transfer on death or payable on death. So if you were to pass away, it avoids probate and goes to that person that you’ve named. So joint ownership, it’s great for married couples, but there’s almost always a better way to handle things, if we’re trying to include someone that’s not a spouse. And it might be through a financial Power of Attorney, it might be a Ladybird Deed on a home, it might be through transfer on death or payable on death designations for those bank accounts. So again, joint ownership for a married couple, great. Anyone else, there’s probably a better way to handle things. So, this has been Chris Berry with Castle Wealth Group. Hopefully you found this informational. Please make sure to subscribe to our YouTube channel. Tick it.

Castle Wealth Group has clients across the nation and helps families plan, protect and preserve what is important by creating a retirement and legacy blueprint.



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