Adding an adult child or another trusted person as a joint owner on a bank or investment account can feel like an easy estate planning shortcut. It may seem to solve two common concerns: making sure someone can help pay bills during illness or incapacity while also allowing the account to pass smoothly after death.
In general, however, this simple step can create serious unintended consequences. Joint ownership may expose your assets to another person’s creditors, override the terms of your Will or Trust, and increase the risk of disputes among family members after your death.
Once someone is added as a joint owner, the account is no longer treated as yours alone. The joint owner may have legal access to the funds, and the account may become vulnerable to that person’s personal financial problems, including lawsuits, bankruptcy, divorce, judgments, or creditor claims.
That means funds you intended to preserve for your care could become entangled in someone else’s legal or financial trouble.
While Maryland law does provide protection from this risk for certain accounts owned jointly by spouses as tenants by the entirety, such protection generally does not apply if a child, sibling, or non-spouse is added to an account.
Survivorship Can Override Your Will or Trust
Accounts held jointly pass at death by “survivorship.” This means that when one owner dies, the account will pass automatically to the surviving owner and not be subject to the probate process.
Avoiding probate is often the primary motivation for creating joint accounts. But while that may sound appealing, it may end up defeating your intended plans because that account will not pass as you have directed under the distribution plan set out in your estate documents.
For example, if your Will says your estate should be divided equally among your children, but one child is named as joint owner on a significant account, that account will pass entirely to that child, despite the directions contained in the Will. The result may be unequal distributions, family conflict, and possible litigation.
Safer Estate Planning Alternatives
Fortunately, families have better options that can provide assistance during life and a smooth transfer at death without giving away ownership during your lifetime.
A Financial Power of Attorney can allow a trusted agent to help manage bills and accounts if you become incapacitated, without making that agent an owner of your assets. Payable on Death or Transfer on Death designations can allow an account to pass directly to named beneficiaries after death and avoiding probate while you retain full control during life. A Revocable Living Trust may also provide a coordinated plan for incapacity management and private distribution after death.
Adding someone to an account may seem like a good idea, and banks and financial institutions are happy to assist. But beware that such a seemingly simple move can unintentionally undermine years of thoughtful planning.
If you would like to discuss your options for estate planning and whether adding a joint owner to your assets is a beneficial option for your circumstances, please contact our office at 301-540-3300 to schedule a consultation. We would be glad to assist you.
Our Initial Estate Planning Consultation is designed to give you the opportunity to find out about our firm, our approach to estate planning, and to help you decide if our services fit your needs and objectives. It is also designed to give you all of the information you need in order to determine what planning is right for you and your family.