People often consider joint ownership of assets as a convenience for getting help in managing their money (e.g., having an adult child as joint owner) or maybe as a way to avoid probate of their estate. These are real benefits, but there are risks that should be considered before setting up joint ownership on a bank account or other assets. For example:
- The joint owner has the same ownership rights as you do. If it is a bank account, it belongs to the joint owner when you die. It may have been your intent that the money in your account be divided equally to heirs, but if the bank account has a joint owner they can keep the money. In an estate I probated, a few hundred thousand dollars of a woman's money went to a surviving second spouse instead of to her children because after marriage she made her husband joint on the accounts. It was not a happy experience for the family.
- Your personal asset is now accessible to your joint owner's creditors to satisfy their civil judgments, child support obligations, etc. If the joint ownership is over substantial bank accounts or real estate that is not a primary residence, the hit to you can be significant.
- The joint owner can make changes without your knowledge or consent. Remember, they are an owner now, the same as you. Any power you have over the asset is also possessed by them. The joint owner can withdraw account funds as they desire, including closure of the account. The frightening reality is that they could withdraw everything and close the account. There are more safeguards in place when it comes to your home, but the joint owner would have authority to hire a realtor or even take a mortgage out on your home.
Is joint ownership always a bad idea? Not always. But these issues need to be carefully thought through before changing how your assets are held. Other options are to make someone an approved signer on your account, or better yet to appoint them as your power of attorney. Powers of attorney can be revoked by you at any time, you can appoint someone to oversee their actions, and they will have legal duties to you and others with a legal interest in your affairs. The power of attorney won't aid in avoiding probate, but choosing this route can be a big help to better ensure that your property and affairs are properly handled during your lifetime and that your heirs receive what you intend for them to get.