Question: “I just heard that if I name my children as joint account holders to my accounts, then should I become incapacitated or pass away, my children will find it very easy to manage my money during my life or when I die.
Then why do I even need an expensive Will ?“
RLG Attorney answer – In certain areas, making things simple is not always going to give the desired result and in such cases, less is not always more. People learn the hard way about the pitfalls of this strategy. This article highlights the importance of getting the right advice from the right professionals who can guide you towards setting up a more comprehensive estate plan.
Let’s take a look at these 2 situations – when someone is alive and when that person passes away
During lifetime
1. Exposure to Creditors:
A significant red flag in this planning technique is the exposure of assets to the creditors of the named individuals. If you named 2 children on the account and one of them (say your son) gets into financial difficulties or legal disputes, his creditors can now go after all of the assets under his name and yes, his 1/3rd interest in this joint bank account is now vulnerable to those creditors’ attacks. Therefore you need to weigh the desire to protect your assets for your children against this undesirable outcome
2. Loss of Control:
We have also seen unfortunate situations where one child goes “rogue” and either because of spendthrift issues or financial difficulties, they wipe out the account of whatever is in there. Since the child, as joint account holder, has complete and absolute control over the funds within the account, he or she will not need anyone’s permission to operate the account during your lifetime. This may be a reasonable set up if the funds are small or you trust your children to do the right thing but our rule of thumb – don’t set up a joint account if all you are looking for is someone to help you manage the funds during your lifetime… instead execute a General Durable Power of Attorney
Upon death
3. Lack of Alignment
If your end goal is to have the assets passing to your children protected from their creditors after you are gone, then setting them up as joint account holders will instead allow the funds to pass to them outright upon your death and become exposed to their creditors (including divorcing spouses). If you want to protect these assets for your children, then naming them as joint account holders of your assets is not a good strategy.
4. Unequal Distribution:
If you name only 1 child and tell him or her to distribute the assets to the other when you are gone, then you may have not only inadvertently created a situation where children may imply your favoritism of the named child causing an impact on family dynamics but you may have also created an adverse tax impact on the child receiving the assets in the account. Also, if you have children with special needs, you just made it harder for that child to receive assets in a protected special needs trust.
Our advice – often, avoiding probate is not always the ultimate goal in estate planning. Don’t be swayed by misinformation that may be out there on what you need to do. Instead, get the proper guidance and advice of a specialized estate planning attorney who can ensure that your plan is set up in a way that fulfills your objectives both during incapacity as well as after death while addressing your unique needs.