Five Reasons Why it Can Be Extremely Dangerous to Put A Child’s Names on Your Assets

Clients often think that putting their children’s names on their savings accounts, brokerage accounts, real estate and other assets, will accomplish tax savings and protect the assets in the event they need long-term health care.  Nothing could be further from the truth.  While putting a child’s name as a joint owner on an asset does avoid probate, the better option would be to name the child a beneficiary, which also serves the purpose of avoiding probate.

First, most assets are only protected for long-term health care/nursing home costs if the parents’ names are removed entirely from the account or property.  Removing one’s name completely, as owner, has adverse gift tax consequences, subjects one to the five-year look back for medicaid, and also means you lose total control over the assets.  Putting a child’s name on assets remedies the control problem, to some extent, but is fraught with other dangers.

Second, having your child become even a joint owner of assets, while giving the parent some degree of control, subjects the asset to equitable distribution in the even of divorce, since one-half of the account is  usually considered an asset (for matrimonial purposes) of the child.

In the event your child is sued, because of a car accident, or for any other reason, his/her part ownership in the asset is subject to being levied against and, therefore, is at risk. In the event your child is forced to file for bankruptcy, once again, his or her part ownership of the property is considered an asset for purposes of the bankruptcy.

If your child is under the age of 18,  and something happens to the parent prior to the child attaining the age of majority, it creates a serious problem, as a child under the age of 18 can not legally be the owner of an asset.  This is an especially important reason why parents should not considering putting grandchildren as joint owners of their assets.

Lastly, making a child the joint owner of an asset means that at the death of the parent, the child will automatically pass to the child, regardless of the terms of the parents’ wills, as the asset passes by operation of law and essentially supersedes the terms of one’s will.  If a parent has more than one child, putting one child’s name on assets may result in other children being treated unfairly.  Many parents explain that the one child will share the inheritance with the others, when the parent passes, but that poses all sorts of tax and liability problems.  Putting more than one child as a joint owner on an asset only serves to jeopardize the security of the asset further, as if any one child gets divorced, sued or goes bankrupt, the asset is at risk.

                                                           *            *             *             *             *             *