“Putting my child’s name on an asset avoids probate”
This is how the conversation usually goes: “someone told me if I put my child’s name on my bank account, upon my death it goes to that child and I avoid probate.”
This particular myth is a real “land mine” waiting for an unsuspecting person to step on. Some assets do pass by title and by operation of law, most notably bank accounts and real estate, and therefore escape the need for using a Will or trust to transfer to the surviving joint tenants, at least until the death of the last surviving tenant on the asset. After all, your estate is going to them after you die anyway, right?
First, if you add a child as a joint tenant on your account or home, you have potentially made a taxable gift to that child. If gift tax is to be paid, it is the donor who pays it, not the recipient.
The bigger issue is your child is now on title with you. This means that your home (or other joint account) is now exposed to what might go wrong in the life of that child. What happens to your home if your child declares bankruptcy, and is listed as an owner on your home? Maybe it’s not a bankruptcy, but an auto accident where your child is “at fault”, and the resulting settlement exceeds the liability limits of your child’s auto insurance. Might your home or other assets potentially be at risk due to the joint tenancy title arrangement? The answer is yes.
Notwithstanding the liability issues discussed above, your child is under no legal obligation to share this distribution with the other children, and could simply keep the entire balance of the joint tenancy property. No one would ever do that, would they? I leave the reader to answer that question.
In conclusion, before you think of using Joint Tenancy as the “simple” or “easy” way to avoid the need for a formal estate plan, consider some of the issues just covered. Is that something you are willing to risk, just to avoid drafting or revising a Will or trust?
Kevin P. McFadden
Knollmiller & Arenofksy, LLP