Joint Owner Pitfalls: Why Adding Your Adult Child Could Backfire

Our San Jose estate planning lawyers often hear from seniors who wish to add their adult children as joint owners on their bank accounts or even on the title of their home. Such a move is often done for convenience; perhaps the parent wants to make it easier for an adult child to access funds to pay bills. Other times, it’s done as a probate avoidance strategy. The senior may want to put the adult child on the title of a house, for example, so that it goes directly to him or her without probate court involvement when the senior passes away.

Adding a spouse or non-spouse as partial owner of your assets (like your home and money) is called joint tenancy. Joint tenancy is a type of arrangement that is commonly used by couples and business partners. If one owner passes away, the remaining owner will receive full ownership of any joint assets immediately and avoid probate. 

In theory, adding a child sounds like a good idea, but there are many potential pitfalls. Here are a few things that you should consider before adding your child as a joint owner to your assets.

1. Your child will have a say in anything you do. If you add your child as a joint tenant, you are essentially giving ownership rights to your child for those assets. Consider the case of a house held in joint tenancy. Because your child is now a co-owner, he or she would have to agree with any choices you make- including the wish to sell or even just refinance to free up cash during retirement. What if the co-owner refuses or disagrees? Such a situation could ensnare you in a battle you never saw coming. 

2. Your assets are at risk if something happens in the child’s life. If the child you name as co-owner files for bankruptcy, divorce, or gets sued, any assets that are in their name, including joint assets, will be at risk.

3. Depending on the circumstance, your bank accounts could be frozen when you pass away. If you have debts, the court could freeze your accounts to stop the co-owner from liquidating the account to avoid those debts. This means your child would not have immediate access to your funds, as you desired. Further, if the court suspects that the child was a joint owner just for convenience (or to simply avoid probate), and did not actually contribute, then the court can step in and freeze the accounts. In either situation, a joint tenancy can create a lot of problems. Not only would the accounts be frozen, but your family would be faced with a long and costly legal process to settle your estate. 

4. The survivor may do anything they please with the assets. Once the joint tenancy is created, your child becomes a joint owner of the assets in question. However, once you pass away, he or she then becomes the sole owner and has total power to do whatever he or she wants with the inheritance. Maybe you have a “hand-shake” agreement on how your assets will be divided, but your co-owner is under no legal obligation to follow that agreement once they become the sole owner. Any heirs that were to benefit from such an agreement would have very little legal recourse. 

Probate in California can be a long and arduous process, and it usually makes sense to avoid it if possible. However, creating a joint tenancy with a child is probably not the best estate planning choice. There are many more effective legal strategies available to protect your assets and avoid probate. To inquire about these options, please call our San Jose Estate Planning Lawyers at (800) 244-8814 to set up a consultation at one of our offices located throughout the state of California. 

If you have any further questions about estate planning and strategies to shield your wealth, or if you’d like to have your current asset protection plan reviewed to make sure it still meets your needs, please contact us at one of our offices located throughout the state of California 800-244-8814 to set up a consultation.