Beware of the 'poor man’s will' approach


I’ve seen a concerning estate-planning strategy that keeps rearing its ugly head: parents adding their children to their bank accounts, investment accounts or home as joint tenancy with rights of survivorship. When I ask these presumably uninformed folks why they titled their property this way, I regularly hear, “To avoid probate,” and “So my child can provide assistance in bill paying or managing my assets.” When titling accounts this way, I have come across scenerios, such as the ones below, that had unintended consequences. Please keep in mind that any estate strategy should be discussed with your tax and legal advisors.

1. Potential access problems: When we title an account in joint tenancy with rights of survivorship with a child or anyone else for that matter, we give the joint tenant the ability to make investments decisions and deposit, withdraw or receive payments from that account. For example, “Lucy” could add her daughter, Kelly, to her $200,000 brokerage account. But then Kelly could potentially make decisions regarding those assets without Lucy’s knowledge or consent (depending on the financial institution’s rules). This type of financial mismanagement is one of the more common forms of elder financial abuse.

2. Potential divorce, creditor and bankruptcy problems: If Kelly is married and gets a divorce, Lucy may find that half of her assets are in jeopardy. Remember that Lucy and Kelly both own the assets as joint tenants with rights of survivorship. Potentially if Kelly has creditor issues, files for bankruptcy or is sued, Lucy has perhaps as much a problem as her daughter. Additionally, when Lucy adds Kelly to her account title, Kelly now has equal rights to the money. Ouch! I know what you might be thinking: Lucy can simply take Kelly’s name off the account. Careful now, do not get carried away. Sure, Lucy can remove Kelly’s name as long as Kelly approves!

3. Potential will conflict: Assume that Lucy has a will that says that when she dies her assets are divided equally between her two children, Kelly and Trey. If Lucy’s brokerage account is titled jointly with only Kelly, however, then Kelly would inherit the account outright despite her mother’s intention. Of course, Kelly could be a caring sister and provide Trey with half of the $200,000 that she received, but Kelly will have a potential gift tax problem because she just gifted Trey $100,000! Remember that if Kelly’s gifts are over $14,000 there are potential gift tax consequences. Kelly may have no legal obligation to give any of the brokerage account money to Trey. Of course, if Trey wants to sit down and talk to his little sister about Mom’s estate, Kelly could say, “There ain’t any estate; my name is on everything, bro!” Under the law, Kelly gets to keep the jointly held assets unless Trey sues Kelly to enforce Mom’s intent. At this point, a basketball game breaks out: Trey gets five lawyers, Kelly gets five lawyers and the money could potentially just dribble away!

4. Potential gift tax implications: Sometimes naming a non-spouse as joint tenant on certificated securities or a home may have gift tax implications. For example, if Lucy adds daughter Kelly as joint owner on Lucy’s home, doing so may be considered a taxable gift depending on the value. If so, Lucy could be required to file a gift tax return and use all or a portion of her $5,450,000 lifetime gift exclusion, or even pay gift taxes.

I get the feeling that those of you who have assets titled with a child are not feeling too good right now. Maybe you are flustered, irritated, angry and annoyed at my comments. I get it. Nobody wants to be told that they did something wrong.Yes, my words are painful, but true nonetheless.Reasonable alternatives, such as transfer on death (TOD) designations, revocable living trust, and financial and health care powers of attorney may be better alternatives than joint tenancy with rights of survivorship. Please do not allow this dispatch to fall on deaf ears and consider having a discussion with your tax and legal advisor today.

Harry Pappas Jr., CFP®

Managing Director-Investments

Certified Estate and Trust Specialist™

Certified Divorce Financial Analyst®

Pappas Wealth Management Group of Wells Fargo Advisors

818 A1A N, Ste. 200

Ponte Vedra, Florida 32082


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