When asking about how to avoid probate, many clients have asked about the wisdom of adding family members as joint owners to bank accounts. While joint ownership will achieve the goal of avoiding probate, there are many dangers and drawbacks to adding family members—even trusted family members—as joint owners on bank accounts:
Vulnerability to creditors: Your only goal in adding a family member as a joint owner may be to avoid probate, but in the eyes of creditors that bank account is suddenly fair game, and may be used to pay off the debts of your co-owner.
Vulnerability to lawsuits: In the same way that joint accounts are vulnerable to the creditors of both owners, they are also vulnerable to potential lawsuits against both owners.
Gift tax assessment: If a new owner is added to an account as a joint owner, but doesn’t contribute any funds to the account, the IRS may see the move as a monetary gift. If the “gift” exceeds the annual gift tax exclusion amount the IRS will require it be reported on a gift tax return.
Joint ownership can adversely affect Medicaid planning: Even if an account is jointly owned by two people, the state considers ALL the funds in the account to be at the disposal of the owner applying for Medicaid. Furthermore, if your co-owner chooses to remove assets from the account Medicaid could consider this an improper transfer of assets and you could be rendered ineligible for Medicaid for a certain period of time.
And of course, the number one danger of joint ownership for probate avoidance purposes is that your co-owner may act unethically or irresponsibly.
For more reliable—and more effective—estate planning strategies to protect your assets and avoid probate, please contact our office.
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