LEGAL ADVICE—My Children’s Names Are On everything. Is That Okay?

By on October 1, 2014
Share Button

By William B. Howell

Many people do their estate planning using what has frequently been referred to as the “lazy man’s will.” That is, they designate a survivor owner in the ownership document (deed, CD, bank account, etc.) so that when one of the owners passes away, the other owner automatically has full and total rights in the asset to sell, spend or do whatever they want to with it. This happens without any kind of court proceeding, including probate. Sounds simple enough.

The arrangement is referred to as JTWROS, which stands for “Joint Tenancy with Rights of Survivorship”. This titling is common between spouses for their homestead property, and many people have the same designation on their investment accounts, CDs and similar financial instruments. It is quite clear that when the first of two joint owners passes away the other joint owner has, as stated above, the right to do with the property as he or she sees fit. While it sounds like a real good solution, in reality it can be quite a nightmare.

What if the spouse as joint owner does not pass away, but becomes incapacitated? Then the other spouse will likely have a problem disposing of the asset (or borrowing money against it) unless other effective arrangements have been made. Some people elect to have a living trust through which they own their assets in order to solve this joint ownership incapacity dilemma, as well as several other problems.

Sometimes people put their children’s names as survivor owners on things that the parent owns: home, bank account and other assets. The effect at death: it goes to the other owner(s), but there is an additional wrinkle that parents don’t often consider. If your child as a joint owner is sued and a judgment is obtained against the joint owner, then your property (or a portion) can likely be seized by the creditor as the child’s asset. Many people protest, saying “but that’s my money” or “that’s my property” and it sounds very logical. The problem is that when you put the child’s name on an asset, the asset stopped being yours exclusively. Instead, the child has an actual ownership interest, and it can be reached by their creditors.

What kind of creditors? It could be their divorce, it could be their bankruptcy, it could be a lawsuit as a result of an automobile accident or any of a number of other situations that cause the assets of the child to be placed at risk (and some of those may be your assets, too).

There is one other situation to avoid. Many older persons have put a child on their bank account with the idea that the child can pay bills for them in case the parent becomes ill and can’t act for themselves. Let’s say the parent has three children and wants to divide the bank account and all other assets equally among the three, and that’s what they have written in their will. However, the will only controls property that goes through probate. A bank account with one child’s name on it (in other than a “signatory authority only” situation) will cause that child to be a co-owner and the child will own the entire bank account when you pass away to the total exclusion of his or her brothers and sisters. It does not matter what your will says.

Many people are unaware of this development and make some sizeable mistakes in titling assets so that their original intent is substantially frustrated after they have passed away.

These and other complications are so easy to avoid. All it takes is a little good estate planning, and an understanding of the consequences of your actions. We find that many people create their own problems; they are not necessarily created for them. Frequently a living trust is used to avoid these outcomes. Get some good advice. Solve these problems in advance for your family.  It’s truly a loving thing to do.