Risks of Joint Ownership with Children
Many of our clients come to us thinking their Will and joint ownership of assets with their children is sufficient estate planning - they don’t ‘need’ a Trust. This is what their parents did, and it was fine, so it should be okay for them too. We regularly see these plans fail.
Risks to Consider:
Exposure to Your Child's Financial Issues: Imagine after adding your son to your home's title, he faces financial troubles, such as accruing significant debt or going through a divorce. You could end up sharing your property with his ex-wife or his creditors might place liens on the property. Or you add your daughter as an owner on your bank account for convenience. Later, your daughter faces a lawsuit, and the funds in the joint account become vulnerable to legal claims, putting your savings at risk.
Tax Implications: Transferring ownership can have unintended tax consequences. Adding your child to your home's title is considered a gift, potentially leading to gift tax liabilities, but likely at least requiring filing a gift tax return. Additionally, upon selling the property, your child might face capital gains taxes based on the original purchase price, not the current market value, leading to a higher tax burden.
Loss of Control: Once your child is a co-owner, major decisions about the property technically require their agreement. If disagreements arise about selling or refinancing, it can lead to familial strain and complicate your financial plans.
Impact on Medicaid Eligibility: Transferring assets can affect eligibility for Medicaid. Such transfers might be viewed as attempts to reduce assets to qualify for assistance, potentially resulting in penalties or disqualification from benefits.
There are safer alternatives to co-ownership with non-spouses, including the following.
Safer Alternatives:
Durable Power of Attorney: This legal document allows you to appoint someone to manage your financial affairs if you become unable to do so, without altering ownership of your assets. It provides flexibility and can be revoked if circumstances change.
Revocable Trust: By placing your assets into a trust, you maintain control during your lifetime and can specify how assets are managed and distributed upon your passing. This approach helps avoid probate and provides clear directives for asset management.
Irrevocable Medicaid Trust: Designed to shield assets from being counted toward Medicaid eligibility limits. By transferring ownership of assets—such as a home or investments—into this irrevocable trust, those assets are no longer considered part of the individual's personal holdings. This means they are protected from Medicaid's asset calculations, potentially facilitating eligibility for benefits like long-term care. This is preferrable to giving assets to children, where they are then at risk of the child’s creditors and potential divorce.
Transfer on Death (TOD) or Payable on Death (POD) Designations: Many financial institutions offer these options, allowing assets to pass directly to named beneficiaries upon your death, bypassing probate without granting current ownership rights. If you want your children to be able to help you manage your account, you can add them as a signer instead of an owner.
At Lubnau Law, we help individuals and families across Wyoming navigate important legal decisions with confidence - especially when it comes to estate planning, Medicaid planning, and business law. With decades of experience, our team is here to offer practical guidance and personalized support every step of the way. Want to learn more? Visit us at www.lubnaulaw.com, check out our blog, or follow us on Facebook for helpful tips and updates.
Don’t miss out—sign up for our newsletter to stay in the loop on the latest legal insights. https://heyor.ca/liuUF4