putting children's names on aging parents accounts

[David1961]

I have a question. With my mother aging, my sister and I are thinking about putting one of our names as joint owner on some of her investment accounts (dividing it up evenly). With the thought that at her death, this joint property will go directly to the surviving owner. What are the differences between doing this and just listing one of us as beneficiary? The main one I can think of is a joint owner can sell the investment during mom's lifetime if needed for her expenses. With a beneficiary, you cannot do this. Mom has all the legal documents (will, POAs and medical directive). My understanding is that for joint property, it goes directly to the surviving owner without going through probate. I have heard that it is not a good idea to put a child on an account as a parent. Does anyone know why? Obviously, our next step is to talk with an attorney, but I want to learn a little more before we do that. Any comments or suggestions would be appreciated. Thanks.

[marko]

For most people I know this is SOP. Good idea to talk to an attorney first to get the full picture.

Not only does this make cash available if needed, it can avoid a lot of needless tax/estate issues.

[steelyman]

My parents' trust document provided for different trusts: individual trusts for when both were alive, a marital trust when one died (these two were meant to cover their needs), and finally a family trust for the kids spelling out how to distribute.

Like you, the other legal documents were in place. The financial institutions involved had to be made aware of them (especially powers of attorney and will/trust). Places like Fidelity and Schwab have forms for giving permission for others to act as successor trustees. They want copies of a few pages (such as cover page, naming of successor trustees, and final page with signature and notarization).

We also retitled as appropriate things in the name of the trust and signed things like checks from them with "TTEE".

[pb4uski]

Quote:

Originally Posted by David1961 ....My understanding is that for joint property, it goes directly to the surviving owner without going through probate. I have heard that it is not a good idea to put a child on an account as a parent. Does anyone know why? Obviously, our next step is to talk with an attorney, but I want to learn a little more before we do that. Any comments or suggestions would be appreciated. Thanks.

Your understanding is correct - no probate needed. I have not heard that it is a bad idea but I could see it might be if the child/co-owner isn't trustworthy since technically they could clean out the account the next day and the parent would have no recourse.

I was a co-owner for my great aunt's accounts and it made settling her estate easy since we didn't need to go through probate. Technically, I could have just kept everything. But of course, I knew it wasn't my money so I distributed it according to the wishes in her will. It avoided probate and also a problem with her will because I had discretion to distribute the funds in accordance with her wishes.

[donheff]

Quote:

Originally Posted by pb4uski I was a co-owner for my great aunt's accounts and it made settling her estate easy since we didn't need to go through probate. Technically, I could have just kept everything. But of course, I knew it wasn't my money so I distributed it according to the wishes in her will. It avoided probate and also a problem with her will because I had discretion to distribute the funds in accordance with her wishes.

How does that part work with respect to estate taxes? I assumed that the original switch to co-ownership would constitute a gift to you that reduces your mother's lifetime tax exception. But, if that was the case, your distribution would constitute gifts from you affecting your exception.

[jerome len]

The key word is trust. Could the assets be sold or distributed in a way in conflict with the wishes of your Mother? That happened to my Dad with his family......broke the family apart. If you have trust, depending on the size of the estate, it could work well. Also, have good insurance, as an "owner" of any asset, especially cars and homes, you're on the line if there is a problem.

[pb4uski]

Quote:

Originally Posted by donheff How does that part work with respect to estate taxes? I assumed that the original switch to co-ownership would constitute a gift to you that reduces your mother's lifetime tax exception. But, if that was the case, your distribution would constitute gifts from you affecting your exception.

Her estate was well under the estate/gift tax limit so estate/gift taxes were not a concern.

The account was actually started with great aunt's funds but co-owned by my great aunt (who passed), my aunt (who had a POA for great aunt) and me (who was paying the bills). So after great auntie passed the account belonged to my aunt and me and the distributions to those great aunt wanted were well under the $26k gift tax limit.

Aunt and I are not concerned about the effect on our exemptions either.

If running over the $5.2 million exemption is a concern for you, that is a nice problem to have.

[kaneohe]

Quote:

Originally Posted by jerome len .................................. Also, have good insurance, as an "owner" of any asset, especially cars and homes, you're on the line if there is a problem.

This is the issue I've heard given by lawyers about jt. accounts. If the kid gets sued , the parent's funds are at stake. The other way around too if the 95yo parent is still driving................ perhaps better for the kid to have POA on the account and have the account be POD to appropriate beneficiaries upon death to avoid the bad linkages.

[donheff]

Quote:

Originally Posted by pb4uski Her estate was well under the estate/gift tax limit so estate/gift taxes were not a concern. The account was actually started with great aunt's funds but co-owned by my great aunt (who passed), my aunt (who had a POA for great aunt) and me (who was paying the bills). So after great auntie passed the account belonged to my aunt and me and the distributions to those great aunt wanted were well under the $26k gift tax limit. Aunt and I are not concerned about the effect on our exemptions either. If running over the $5.2 million exemption is a concern for you, that is a nice problem to have.

I'm not too worried about overrunning the exemption but it could be an issue if someone with a large estate of their own took co-ownership of a parent's large account with the intent to distribute to siblings. I also wonder about documenting these sorts of transfers. Do the details go to the IRS? Do they track them? Any gotchas to watch for if you don't keep a distribution that exceed the yearly gift tax documented?

[JoeWras]

One disadvantage: if any of the owners are sued, your mom's money is open to the lawsuit.

This is why many folks set up most of their assets in trust, then have one account where all have access. Funds are kept to a minimum in the joint account. Transfers from the trust to the joint account can be done on a regular or interim basis by the POA or other fiduciary.

Edit: sorry, I'm repeating what was said above. My apologies.

In short, it really isn't a good idea to commingle everyone together. Even if you all trust each other, it doesn't matter when the unforeseen happens.

[marinauser]

There are two potential issues with just adding a name to an elderly person's account to me. They both relate to tax issues.

If the account includes investments other than cash, and they are inherited, you receive the investments at the stepped up basis at the time of death. In other words, if Mom paid $10 for a share of Exxon and, when she dies Exxon is at $90, then the person that inherits that account has a new basis of $90 and when the stock is sold, the only capital gains taxes are on the increase in the price over $90. If you just add your name to the account, then as far as I can tell, you get to pay taxes on the the investments based on what mom paid for them.

The second tax related issue depends on the value of the accounts and whether gift tax comes into play. You can't just add your name to an account without some assessment of whether it is a gift to you and whether the gift tax rules come into play. If you are talking about a $5000 bank savings account, I wouldn't worry about it. If you are talking about $2 million in investments or a $1 million dollar house, it is an entirely different dicussion and you could get into a lot of issues.

[Chuckanut]

Quote:

Originally Posted by pb4uski I was a co-owner for my great aunt's accounts and it made settling her estate easy since we didn't need to go through probate. Technically, I could have just kept everything. But of course, I knew it wasn't my money so I distributed it according to the wishes in her will.

Of course. You have ethics.

But.... what would have happened if an enemy had won a lawsuit against you that was in excess of your assets and any liability insurance you have? Could they have a claim on your aunt's assets?

[pb4uski]

Quote:

Originally Posted by Chuckanut ....But.... what would have happened if an enemy had won a lawsuit against you that was in excess of your assets and any liability insurance you have? Could they have a claim on your aunt's assets?

First, my insurer would be out a couple million first plus whatever they spent for the best lawyers money can buy. Great auntie's assets would be a pittance by comparison. Plus, I've never been sued - ever.

So, I concede it is a risk albeit a lower than whale-sh!t at the lowest part of the ocean risk.

Also, the account was a cash equivalent so there were no tax basis/LTCG implications.

[WhoDaresWins]

Four or five years ago when my son was visiting, I dragged him to my bank to add his name as joint owner of my checking account (where I keep at least a year's worth of money for expenses). He is either TOD or beneficiary on my other accounts. I looked online and it appears that in PA one cannot have TOD on one's home or vehicle. In order to minimize taxes on my eventual estate I gift my son up to the legal limit every year.

[GoodWishes]

As marinauser pointer out, depending on the size of the asset and type of asset, taxes can be a big difference. Estate tax limit is high enough that most people don't need to worry about that. But stepup in basis can apply to lots of people with real estate, stocks and any asset with basis. You only get a step up in basis if you inherit the asset.

[Jerwin]

Don't forget that the assets could be subject to an adult child's divorce if you do this. A better idea is to put the assets in trust and make the child a co-trustee with the parent as beneficiary.

[marko]

Quote:

Originally Posted by pb4uski Plus, I've never been sued - ever.

My accountant would say: "past performance is no indication of future results"

My attorney would say: "anyone with ten bucks can sue you for no reason"

There's a lot of vultures out there who would say: "I'll meet you on the courthouse steps!" There's people who will sue for any reason but will gladly settle for a lesser amount.

Happened a lot in my former company. They'd interview for a job, claim some sort of discrimination and serious legal action as they were leaving the interview and then say: "Just give me $500 and we'll forget today ever happened". We never bit on the offer, but his exact same scam would happen four or five times a year.

[imoldernu]

Quote:

Originally Posted by David1961 Obviously, our next step is to talk with an attorney, but I want to learn a little more before we do that. Any comments or suggestions would be appreciated. Thanks.

The next step... good idea. A few hundred dollars should provide the options and risks...

[Goonie]

My mom and dad were joint owners of all if their accounts. The homestead, vehicles, and other odds and ends had both if there names on them. Shortly before his passing, he instructed mom to add me as a joint owner on their accounts. So that is how how it has stood for the past 16 years.

Last year, she went to her attorney and updated all of her legal documents....Will, Pour Over Will, POAs, and such. She also had him draw up a Revocable Living Trust for her, with me as the Successor Trustee. The homestead, real estate, and everything else other than accounts with named beneficiaries, is in that RLT. The Pour Over Will rolls any loose odds or ends into the trust as well.

Being a joint owner on her bank accounts and such, makes it very handy for me to help take care of her bills, banking, investments, and other financial matters. And that really helps in giving her peace of mind. We also have an Umbrella Policy to cover the unlikely possibility of a lawsuit.

[ERD50]

Quote:

Originally Posted by Goonie My mom and dad were joint owners of all if their accounts. The homestead, vehicles, and other odds and ends had both if there names on them. Shortly before his passing, he instructed mom to add me as a joint owner on their accounts. So that is how how it has stood for the past 16 years. Last year, she went to her attorney and updated all of her legal documents....Will, Pour Over Will, POAs, and such. She also had him draw up a Revocable Living Trust for her, with me as the Successor Trustee. The homestead, real estate, and everything else other than accounts with named beneficiaries, is in that RLT. The Pour Over Will rolls any loose odds or ends into the trust as well. Being a joint owner on her bank accounts and such, makes it very handy for me to help take care of her bills, banking, investments, and other financial matters. And that really helps in giving her peace of mind. We also have an Umbrella Policy to cover the unlikely possibility of a lawsuit.

Since you have joint title to all accounts, Will, Pour Over Will, POAs 'and such', what is the need for the Revocable Living Trust? Would being joint on the home and real estate be enough? Or are there complications with that? Or maybe other beneficiaries named in the trust?

Just curious, since we are going through some of this with my in-laws, and I'm looking to update my trusts now that our kids are no longer minors. Trying to educate myself.

-ERD50