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The Perils of Joint Tenancy:  The Poor Man’s Estate Plan

My regular readers already know that I’m constantly beating the drum to convince families that an estate plan is a necessity not just something that would be nice to have. I get all types of responses but one of the most common is “I’m just gonna add my daughter/son to my bank account or my deed.” This my friends is a really poor choice for estate planning. By adding loved ones to your accounts or title, you create what is called Joint Tenancy and while it sounds like a quick and inexpensive fix, it actually has the potential to create a lot of problems.

What is Joint Tenancy?

Adding someone to title or accounts creates a “joint tenancy with rights of survivorship.” It gives the person named to the account/title equal ownership in the property and upon death, the account/title automatically passes to the other named joint tenant. Sounds simple enough and you may think this is a nice and easy solution. THINK AGAIN!

The Trouble with Joint Tenancy

Joint Tenancy creates a number of potential problems. A short summary of a few is listed below.

  • It doesn’t empower of loved ones to handle your affairs should you become mentally or physically disabled. You need a durable power of attorney and health care directive to make sure a trusted loved one can step up and handle your affairs if you can’t.
  • It doesn’t eliminate the need for probate court. Any property that is not in the joint tenancy cannot be passed on without involving the probate court.
  • You can effectively disinherit anyone you would like to leave a gift for if they are not named as joint tenants. For example, if you add your son/daughter on a bank account but you also want their sibling(s) to receive some of the proceeds, the sibling(s) is automatically disinherited. Upon your death, title completely passes to your named joint tenant.  Your joint tenant is not legally obligated to make a gift to your other children or loved ones.   If your other heirs decide to fight to receive their inheritance, then they will be tied up a costly and long probate court fight.
  • If your loved one is married, the bank account or property becomes community property in the marriage. In the event of a divorce or death, their former spouse has a claim against the bank account or title of the person you have added to the bank account or property is entitled to half of the value. That’s right your in-law could end up owning one-half of YOUR stuff!
  • Likewise, if the loved one you’ve added to your bank accounts or property title is involved in a lawsuit or bankruptcy, a claim can be entered against the account or property title.

There are Few Shortcuts in Life

Sometimes a perceived short-cut is just a gateway to many other problems. Such is the case with Joint Tenancy. You need a complete plan that includes a will and/or living trust, power of attorney, and health care directive.  Having a will or living trust is important for every family, regardless of how much money they have. It provides some peace of mind and certainty about how things will be handled if you pass away or suffer some serious illness or disability.

Here are some easy things you can do to get yourself started on putting your financial affairs in order.

  1. Make an inventory of your assets (bank accounts, investments, property, jewelry art, etc.). You can use this handy dandy Net Worth Calculator to get yourself started.
  2. Review whom you’ve named as beneficiaries of your life insurance, retirement funds or investment accounts.
  3. Download my FREE e-Book “10 Steps to Getting Started on Your Estate Plan” to help get your thought and wishes organized.

And last but not certainly not least, contact me for a FREE Estate Planning assessment. I can be reached by email at gmsmith@jamiilaw.com or by phone at 312.868.0781.

Outdoor group portrait of black multi generation family

A few weeks ago I wrote a short blurb about Guardianship and it got a bit of attention.  Well, this time I’m going to be more blunt with you parents out there and say “If you have kids and haven’t created an estate plan, you trippin’ Yo and it’s time for you to get your stuff in order!”

That’s right I said it.    AND now I’m going to tell you how you’re trippin’ and what you need to do to get it together.   The most common reason given for not creating an estate plan is “I’m not rich so I don’t need a plan.”  While I don’t agree with that logic, I’ll let that pass for now and tell you why you need a plan to protect and provide for your kids.  You need to do this ASAP.

A God Parent is Not a Legal Guardian

If you’ve assumed a family member or your child’s godparent will automatically be able to step in if you die or become incapacitated, I have to tell you you’re wrong.  Flat out.  You need a written Guardianship Plan to make sure your kids are cared and provided for according to your wishes.  Your good intentions are not enough.

What is Guardianship? It is the legal authority granted by a court over a child and/or the child’s property.   While a child’s biological parent can step in and become the legal guardian, another family member or God parent cannot without the courts’ review and approval. If you die or become incapacitated without a will or trust that names your preferred guardian,  the court could appoint someone other than the person you want to raise your child.

There will be a court proceeding to determine who will be named the guardian of your child’s person and property. If your child is under the age of 18 and is named as the beneficiary of your insurance policy or other accounts, the court will not allow them to directly inherit the proceeds. The court will name a legal guardian of property to manage what you’ve left for your kids.  The guardian of the property will make periodic reports to the court on how they are managing the affairs of your child.

If you want some say who is named by the court to be the guardian of your child and any insurance policies or accounts you leave to them, you need a Guardianship Plan that outlines who you prefer to named the guardian.  To increase the likelihood the court will name your chosen person, you should include a statement or letter explaining why they qualified and provides any other detailed instructions you want to be carried out.

I know much of this probably comes as a surprise to you.  Let’s be honest, most of us don’t like thinking about this stuff.  But now that you know better, shouldn’t you do better?  Even if you think you don’t own enough property to include in an estate plan, don’t you want to make sure your kids are well cared for should something happen to you? Of course, I’m going to end this post with a shameless plug urging you to contact me for help with putting together a plan that protects your family and gives you some peace of mind.  Contact me at 312.868.0781 or by email at gmsmith@jamiilaw.com

In addition to the reasons listed above, some people take an estate planning shortcut and think that simply adding a loved one(s) to their title and bank accounts is enough.  This “poor man’s” estate plan presents lots of different problems.  Most importantly, it doesn’t shield the assets you want to leave to loved ones from creditor claims or the outcome of a messy divorce.  For example, if you add your son to the title of your home and bank accounts and he  goes through a divorce, then the home and accounts are considered marital property.  This means his ex-wife is entitled to a portion of the value of the home and bank accounts.  I betcha you never considered the potential problems with joint tenancy.[push h=”20″]

As mentioned in this article from AARP, “Having a will or living trust is important for every family, regardless of how much money they have.”  It provides some peace of mind and certainty about how things will be handled if you pass away or suffer some serious illness or disability.”

Here are some easy things you can do to get yourself started on putting your financial affairs in order.

  1. Make an inventory of your assets (bank accounts, investments, property, jewelry art, etc.).  You can use this handy dandy Net Worth Calculator to get yourself started.
  2. Review whom you’ve named as beneficiaries of your life insurance, retirement funds or investment accounts.  
  3. Download my FREE e-Book “10 Steps to Getting Started on Your Estate Plan”  to help get your thought and wishes organized.

And last but not certainly not least, contact me for a FREE Estate Planning assessment.  I can be reached by email at gmsmith@jamiilaw.com or by phone at 312.868.0781.

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Blog Layout: Small Image Normal

  The Perils of Joint Tenancy:  The Poor Man’s Estate Plan My regular readers already…

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Page 1 of 21 2

Blog Layout: Small Images - Scrollable

Blog Layout: Small Images - Masonry

  The Perils of Joint Tenancy:  The Poor Man’s Estate Plan My regular readers already…

A few weeks ago I wrote a short blurb about Guardianship and it got a…

In addition to the reasons listed above, some people take an estate planning shortcut and…

“Daddy, What’s a Will?” In the opening of “Legacy” on Jay Z’s critically acclaimed “4:44,”…

   It was recently noted that African American women are the most educated of all…

If you’re a child of a baby boomer and have children, your estate planning concerns…

Page 1 of 21 2

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