Joint Ownership is Not An Estate Planning Substitute

Today many individuals are informed enough to know that probate is the last thing they want their loved ones to deal with at death. Unfortunately, with a will, that is exactly what your loved ones get….Probate!

As individuals seek out ways to avoid probate, they often seek simple, less expensive alternatives. Unfortunately, the alternatives they find tend to create more problems than they bargained for. One perceived estate planning alternative is joint ownership. When people are asked why they think joint ownership is such a great idea, the typical response is that it allows them to avoid probate. As it turns out, this is only partially true.

Loss of Control
What many joint owners do not realize is that when assets are owned as joint owners, there can be loss of control. For example, if your client put his name and two of his children’s names on his brokerage account, the company may require all three signatures to close the account, cash in the investments, or to transact business of any kind on that account.

Joint Owner Liability
Often, a widowed or aging adult will make a family member or friend a joint owner on various assets. Many times this is done with the idea that the friend or family member will be able to access the money in the event that the original owner is ill, incapacitated or unavailable. The problem with owning assets jointly with a non-spouse is that you take on that joint owner’s personal liabilities. If your joint owner gets sued, goes through a divorce, or files bankruptcy a portion of those assets may be lost to creditors.

In each of these situations, the individual creating the joint ownership has tried to do the right thing. However, along the way they have created other problems such as loss of control, added liability of the joint owner, and potential estate and gift tax problems. What everyone needs to realize is that all of these goals can be accomplished with the preparation of a Living Trust.