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: