document-428334_640Many of my senior clients see joint ownership of all their assets (such as investment accounts, bank accounts and real estate) as a cheap and easy way to avoid probate since joint property passes automatically to the joint owner at death.  They feel that joint ownership can also be an easy way to plan for incapacity since the joint owner has the immediate ability to pay bills and manage investments.  These are all true benefits of joint ownership, but there are a number of potential drawbacks that I feel greatly outweigh the benefits.

The first drawback is that there’s an inherit risk involved.  You need to remember that each joint owner of each account has complete access and the ability to use the funds for their own purposes.  It wouldn’t be the first time that I’ve seen children who are caring for their parents take money in payment without first making sure that their siblings are all on board.  Or worse, they use the money for their own purposes.  In addition, the funds are available to the creditors of all joint owners (such as in bankruptcy or in a lawsuit) and could be considered as belonging to all joint owners should they apply for public benefits or financial aid.

Another drawback is that there may end up a very inequitable distribution in the end.  If you have one or more children on certain accounts, but not all children, at your death some children may end up inheriting more than the others.  While you may expect that all of the children will share equally, and often they do, there’s no guarantee.  Having several different children on different accounts becomes extremely difficult and confusing.  You have to constantly work to make sure the accounts are all at the same level, and there are no guarantees that this constant attention will work, especially if funds need to be drawn down to pay for care.

Further, as silly as it sounds, you need to expect the unexpected.  A system based on joint accounts can really become a mess if a child passes away before the parent.  Take the example of someone putting their house in joint names (with rights of survivorship) with her son to avoid probate and Medicaid’s estate recovery claim.  If the son died unexpectedly, the daughter‑in‑law or grandchildren would be left with only a small piece of what they were supposed to get.  This non-probate asset just became a probate asset and would be (typically) divided up as per the Will, between all the children.

I will admit that joint accounts do typically work well in two situations.  First, when you have just one child and everything is to go to him, joint accounts can be a simple way to provide for succession and asset management.  It has some of the risks described above, but for many clients the risks are outweighed by the convenience of joint accounts.

Second, it can be useful to put one or more children on your checking account to pay customary bills and to have access to funds in the event of incapacity or death.  Since these working accounts usually do not consist of the bulk of your estate, the risks listed above are relatively minor.  I actually recommend this quite often to clients as banks prefer working with a joint account holder than a person with a power of attorney for everyday transactions.

For the rest of your assets, Wills, trusts and durable powers of attorney are much better planning tools.  They do not put your assets at risk.  They provide that your estate will be distributed according to your wishes, without constantly reassessing account values in the event of a child’s incapacity or death, and they provide for much simpler asset management in the event of your incapacity.