The four biggest dangers of putting your assets into joint accounts

2041-Spring-General-2014-JM1Often, older people will add the name of one of their children to their checking account, their brokerage account, or even their home. They might do this to make it easier for the child to help them with their financial affairs. Or they might think that it’s a clever way to avoid probate.

Joint ownership can be good in some cases, but you should be aware that there are a number of dangers in setting things up this way.

To illustrate, imagine that a woman named Anna has three children – Barry, Todd and Louise – and she adds Barry’s name to her accounts so he can help her with her finances. What could go wrong?

A child’s debts. Suppose Barry loses his job and runs up some large debts. Since Barry is a joint owner of Anna’s accounts, his creditors could potentially come after Anna for repayment. Or suppose Barry owns a business and personally guarantees a business loan. If the business hits a rough patch, Anna could be on the hook for the loan.

A lawsuit. Suppose Barry is involved in an auto accident, and an injured driver sues him. Or suppose someone falls on Barry’s property and suffers an injury. A person who brings a lawsuit might be able to empty Anna’s bank account as well as Barry’s.

A divorce. If Barry gets divorced, his wife could potentially claim some rights over the joint property. Suppose Anna put Barry’s name on the deed to her home. That could mean that if Anna wants to sell the house, or take out a home equity loan, Barry’s wife might have a veto power.

A family fight.When Anna dies, any real estate or financial assets that have Barry as a joint owner will go directly to Barry. If Anna has a will that divvies up her other property, it simply won’t apply to the jointly owned property. What about Todd and Louise? If Anna intended to split her property evenly among her children, that might not happen – which could create lasting hard feelings between the siblings.

Even if Barry is a nice guy and offers to give Todd and Louise a share, doing so might create gift tax issues and other problems that could easily have been avoided.

A lawyer can suggest a number of other techniques to avoid probate and allow children to help with finances, and they might be much safer arrangements.