Many people see joint accounts as a cheap and easy way to avoid probate, since joint property passes to the join owner at death, but these accounts can actually be quite risky when it comes to estate planning.
Joint ownership of accounts can be a great way to easily pass assets to another owner at death. Joint ownership is also a great way to plan for an elder person's incapacity, since the joint owner of the account can pay bills and manage investments if the primary owner falls ill or suffers from any other sickness.
There are some potential downsides to joint ownership of an account. The biggest factor to consider is the risk of joint ownership. Joint owners have complete access to the account, and the ability to use the account funds for any purpose. When children are made joint owners of an account, it is often the case they can take money without consulting with the other children.
Another risk involved with joint ownership accounts is that the funds of the account are available to all creditors of all the joint owners of the account. There is one type of joint ownership called tenants by the entireties that does not have this risk for assets in Florida. In addition, joint ownership of an account can also serve as a roadblock to receiving financial aid or health benefits.
Joint ownership of accounts can also cause some heirs to receive more inheritance than others. An example would be if a child is named a joint owner of the account. At the death of the original owner, that child could receive more than the other children. While the original account owner can hope the children will share the funds from the account equally, there is no guarantee the other joint owner will distribute the money equally.
A system based on joint account ownership can also fail if the joint owner passes away before the original owner. If a child is the joint owner and passes, the child's loved ones may not receive the benefit of those funds. For instance, if a mother places an account in the name of her child and herself with rights of survivorship and the child dies before the mother, the assets in that account will go to the mother's heirs and not to the daughter's heirs.
Joint accounts are best used in limited situations. One situation to possibly use a joint ownership account is when a senior has just one child and wants to pass everything to the child. Generally an estate planning trust can provide better protections for the unexpected than joint ownership or a beneficiary designation. There are risks involved with joint ownership and tax issues, so you should consult an estate-planning attorney before relying on joint ownership.
Another way a joint account can be useful is to include children on a person's checking account to help pay monthly bills. This checking account should be a smaller account that does not include the bulk of the original owner's assets.
Instead of taking a risk with joint ownership accounts, we recommend using more reliable estate-planning tools such as durable power of attorney to provide the ability to pay bills or help with financial decisions. These tools can limit the risk of loss by eliminating your agent's creditors from those who can access your funds.