Protect Your Assets: Four Pitfalls to Avoid

You may be familiar with the idiom, ”A little knowledge is a dangerous thing.” When it comes to your money, not only can it be dangerous—it can be downright expensive. For example, one often reads that titling one’s assets as “joint” avoids probate following a death; doing so is touted as smart because it saves legal fees and keeps family business private. Readers might assume, too, that joint account registrations help avoid income or inheritance taxes.

Actually, depending on the circumstances, joint titling may not be smart, and could even result in dissipated assets and increased tax liabilities. To broaden our perspective, Karen Schecter Dayno’s¹ article: Honoring One’s Wishes: It’s Not All About the Will², identifies four potential pitfalls of selecting joint registration with your child(ren). She wrote:

“While joint tenancies may be a good way of holding property for married couples, there are potential problems that may arise when a parent holds property in joint names with his or her child. Some of those issues include the following:

The child, as joint tenant, has the ability to withdraw all of the money in the account.
If the child has creditors, the creditors may be able to access his or her portion of the account, even if the parent contributed all of the funds.
If the child gets divorced, the child’s share of the money may be considered marital property for purposes of equitable distribution.
If the child predeceases his or her parent, the parent will have to pay inheritance tax on his or her own money.”

Entrust’s book, Balancing Act: Wealth Management Straight Talk for Women, also addresses a potential pitfall of adding a child’s name to an account registration, citing the following true story example on p. 89: Account registrations matter:

Read Page 89: Account registrations matter

Sandy’s husband of twenty-seven years had just died. All that was left of her family was her twenty-two year-old daughter and herself. Of course there were one or two cousins out there, too, but they had never been close. “What a lonely place to be,” she thought. “I really miss him.”

Before long, life insurance proceeds arrived in the mail—a check for $750,000. “Wow, that seems like a lot of money,” Sandy thought. “I don’t know if I want to invest it or just keep it safe in the bank.”

“For right now maybe I should deposit $250,000 in three different banks, so each deposit will be FDIC insured. That would bring me comfort, something I can actually count on for the future.”

While driving to the first bank, Sandy decided it made sense to put the funds in a joint account with her daughter. After all, her daughter would inherit the funds someday anyway. She chose the JTWROS (joint tenants with rights of survivorship) account registration. This registration made them each a full owner of the account with access to the funds in the account.

Sandy was satisfied with her decision for some time. Then she incurred a major bill. She needed to replace her roof. Off she went to the bank to take the money she would need from one of her accounts.

Sandy was in for a shock. Her original deposit of $250,000 had shrunken to $7,000. “How can this be?” she asked. The bank associate informed her that because her account registration was JTWROS, the other person on the account had withdrawn funds from time to time, and now only $7,000 remained.

If you would like to review the titling of your accounts to ensure you avoid unintended consequences, Entrust’s Second Opinion Service (SOS) was created just for you. This service offers you a complimentary online or in-person meeting to take a look at where you are now, in the interest of determining whether or not you are in good shape to achieve your long-term goals.

If you are in good shape, we reassure you of this and you can breathe a deep sigh of relief. If not, we will suggest next steps to take, to get back on track. Ensure the protection of your assets by scheduling your Entrust SOS meeting today: info@entrustfinancial.com or 610-687-3515.

¹Estate Attorney with Timoney Knox, Fort Washington, PA
²http://www.timoneyknox.com/firm-update/honoring-ones-wishes-its-not-all-about-the-will