JTWROS: Don't Take This Perilous Estate Planning Shortcut!

You've probably heard the term "Joint Tenants with Rights of Survivorship," or "JTWROS" for short.

The term essentially means a method of joint ownership by more than one person or entity whereby one owner's interest in the property automatically transfers to the other owner(s) upon his or her death.  I'm climbing on my soapbox today because the common misuse of this ownership arrangement as a "bootleg" or "DIY" estate planning tool is a personal pet peeve of mine, and another instance of it recently came across my desk.  A prospective client explained that he or she "added" a child to one of his or her accounts so that the child would be able to help the parent with banking tasks as the parent ages. This is not ALWAYS a bad idea, but it does come with some very serious risks.

So, why do I freak out when a client says:

"I put my daughter's name on my account so she can help me with my banking."

Here's why:

1. The statement above that the parent "put daughter's name on the account," is legally vague.  This could potentially be interpreted to mean that the daughter has been given signature privileges, has been made a Joint Owner with Rights of Survivorship, or has been designated as a authorized signer pursuant to a valid Power of Attorney.  Most commonly, in my experience, the client means that he or she has added the child as a Joint Owner with Rights of Survivorship.  Regardless, it becomes incumbent upon us to investigate to determine what "putting daughter on the account" really means.

2. Adding a child as a joint owner on an account places the assets in that account at unnecessary risk in that a joint owner of an account could simply empty the account on a whim leaving the parent with little, if any, recourse.  Taking into account the obligatory, "my child would never do that to me," statement from the client, and assuming that the child in question is a pillar of moral rectitude as parent asserts, then we move to the next set of risks...

3. Adding a child as a joint owner of an account potentially subjects the account to the claims of child's creditors.  This doesn't just mean that the funds might be attached by a traditional "creditor" like the child's credit card company or mortgage lender should the child default on a loan.  Maybe the child causes a car accident which result in damages exceeding his or her policy limits, or maybe the child gets a divorce and the "in-law" spouse claims the account funds should be split off to him/her. Do you know what happens when an account with the child's name on it as a joint owner is discovered by any of these aforementioned parties?  Often a discovery request is sent to the financial institution and the account is immediately frozen with little or no notice.  How upset would you be if you were unable to access your funds because one of these adversarial parties had the account frozen?

4. Making someone a joint owner of an account can foul up your previously executed estate plans.  Even if you've already made a will or a trust designating a particular distribution of your assets upon your death, making one child a joint owner (JTWROS) of an account or other property will result in that particular account or property automatically passing solely to that child upon your death. That will or trust that you went to the effort and expense to have prepared just became completely ineffectual with regard to that particular JTWROS account or asset. There's no automatic "reallocation" of assets from a will or trust to compensate the other child(ren) for not receiving the assets in that JTWROS account.  It usually just ends in a lopsided division of the assets and an awkward feeling amongst all the parties involved.  

All of these scenarios are easily avoidable through the use of proper estate planning methods instead of trying to take the JTWROS shortcut.  Your banker might be very knowledgeable and helpful, but it's not likely that he or she is also an attorney experienced in estate planning matters.  For this reason, it is imperative to seek the assistance of experienced legal counsel before attempting to add anyone to an account as a joint owner.  I assure you, there are almost always much safer ways to accomplish your goals without placing the assets in peril, and without costing an arm and a leg.  

If you have questions or concerns about this or other legal matters, please see our website at www.halcombsingler.com, or contact us at (317) 575-8222.