Estate planning is a huge topic and many of the issues apply not just to what happens to assets after one dies, but also to how best to manage assets while one is still alive, especially in the unfortunate event that one may become incapacitated.
One convenient tool is the “joint ownership” of assets, Joint ownership with right of survivorship is, in fact, often the default form of ownership when an asset is owned by more than one person, whether married or not. In particular, when two people are joint owners of an asset, such as a checking account, either one of the owners may make use of the asset.
While the most common usage of a jointly owned account is that of a married couple, oftentimes, an older person may add one or more of his or her (adult) children as a joint owner on an account so that if the original owner becomes incapacitated, or simply would like some help in doing things like paying bills, the other person may step in and do so.
It’s easy. It’s convenient. It’s effective. And it’s hazardous to your wealth and your estate planning.
Of course, nobody would add someone he or she didn’t completely trust as a joint owner. So we’ll ignore (with only this one warning) the hazard that as soon as someone is added as a joint owner to a bank account, that account could be emptied and the original owner may have no effective recourse to get back his or her assets.
But that aside, when the original owner of the account dies, the entire account goes to the surviving joint owner(s).
And this can cause trouble with estate planning, since this happens outside of the action of any wills or trusts. If the will says “split all assets equally between the kids” and there’s a joint account shared with one of the kids, it may lead to an outcome – unequal splitting of assets – which was not the decedent’s intent.
The folks at Tran Sood Law here in Palo Alto have written an article well worth reading which demonstrates this problem:
They recommend several alternatives such as trusts and powers of attorney.
If you are considering adding a joint owner to one of your accounts, please read this article first!