Owning assets jointly with a child may not be the right estate planning strategy

There’s a common misconception that owning assets jointly with a child or other heir is an effective estate planning shortcut. While this strategy has a certain appeal, it can invite a variety of unwelcome consequences that may quickly outweigh any potential benefits.

Owning an asset — such as real estate, a bank or brokerage account, or a car — with your child as “joint tenants with right of survivorship” offers some advantages. For example, when you die, the asset automatically passes to your child without the need for more sophisticated estate planning tools and without going through probate.

But it can also create a variety of costly headaches, including:

Avoidable transfer tax exposure. If you add your child to the title of property you already own, it may be considered a taxable gift of half the property’s value. And when you die, half of the property’s value will be included in your taxable estate.

Increased income tax. As a joint owner, your child loses the benefit of the stepped-up basis enjoyed by assets transferred at death, exposing him or her to higher capital gains tax.

Exposure to creditors. The moment your child becomes a joint owner, the property is exposed to claims of the child’s creditors.

Loss of control. Adding your child as an owner of certain assets, such as bank or brokerage accounts, enables him or her to dispose of them without your consent or knowledge. And joint ownership of real property prevents you from selling it or borrowing against it without your co-owner’s written authorization.

Unintended consequences. If your child predeceases you, the assets will revert back in your name alone, requiring you to come up with another plan for their disposition.

Unnecessary risk. When you die, your child receives the property immediately, regardless of whether he or she has the financial maturity and ability to manage it.

These problems may be mitigated or avoided with one or more properly designed trusts.

© 2023


Subscribe to receive the latest news, updates and insights from Heritage Wealth Advisors directly to your email.

This field is for validation purposes and should be left unchanged.

Heritage Wealth Advisors is an SEC-registered investment advisor. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Heritage. Heritage is neither a law firm, nor a certified public accounting firm, and no portion of the newsletter content should be construed as legal or accounting advice. A copy of Heritage’s current written disclosure Brochure discussing our advisory services and fees continues to remain available upon request or at heritagewealth.net.

Have questions about this topic?

Request More Information