The simple answer to this popular question, is no. Adding your children to your financial accounts or real estate is not a very good idea. I understand the theory behind it. In people’s minds it would seem like a logical cheap way to avoid probate and avoid the government/Medicaid from taking their assets/house. However, by adding your children to your accounts you are in turn opening pandora’s box to many other issues, such as:
- Even if your house has both your name and your child’s name, the asset still counts towards your assets when applying for Medicaid.
- If your child gets sued, your jointly owned property or jointly held financials will be considered as assets for your child in the lawsuit against them, which means anyone suing your child can go after your accounts as well.
- If your child files bankruptcy, your jointly owned property and jointly held financial holdings will county towards their bankruptcy and figuring out a remedy for the creditors.
- If your child goes through a divorce, your former daughter in law or son in law may pull use your jointly held property or jointly owned financial holdings in the divorce proceeding against your child in attempting to figure out how to equalize.
- If your child is on government benefits (social security disability/Medicaid), they could lose their benefits by being considered as having too many assets by being a joint owner on your accounts.
- Your estate planning objective may not be honored. If you list one child on a financial account, they legally own that account upon your passing. This means if you have five children and you only list one child on an account, when you pass that account goes to the one child. The other four children would not be entitled to anything. It doesn’t matter if your Last Will or any other handwritten statement from you says.
- Finally, your children could lose out on tax benefits by being joint owners. Your children would receive what is called a step-up basis upon your death. In easier terms, this means that upon your death, your children would receive a new cost basis for assets valued at the date of your death. To break it down, let us say you bought a stock worth $10,000. When you died, the stock was worth $200,000 and let us say your children waited two years before selling the stock and now it is worth $250,000. Your children’s taxable gain would only be $50,000 (the difference between $200,000 and $250,000) rather than $240,000 (the difference between $10,000 and $250,000) if they were joint owners.
The list above is not exclusive and there are other issues to consider when deciding to add your children to your accounts or real estate.
For those seeking help from their children a Limited or Durable Power of Attorney would allow your children to assist you with your financial holdings and real estate without taking on any risk of the above-mentioned issues. Another alternative would be to establish a Trust, which survives death unlike a Power of Attorney.
There are many tools at your disposal to protect your assets from Probate, creditors, and in some instances the government. The key is preplanning. An estate planning attorney in Grand Rapids, MI, can help you with your estate planning needs, giving you peace of mind that comes from knowing your wishes and your legacy will be honored. At the Law Office of Sean Patrick Cox, PLLC, our attorneys proudly serve West Michigan.
We offer free consultations, Call Today (616) 942-6404
An associate attorney at The Law Offices of Sean Patrick Cox.
