Did you hear the story of the retiree who had his accounts cleaned out by his son? It can easily happen if you put your investments and bank accounts in joint accounts. If you become mentally incapacitated, your children can take the money, leaving you broke at a time you need help. Most couples set up joint investment accounts for banking, investing, real estate, and motor vehicle purchases. But when a spouse dies, joint accounting can become more complicated.
There are several benefits for joint accounts. There can include probate-free transfer upon death, income splitting for spouses, and ease of estate administration. But the pitfalls can be greater.
The primary risk is loss of control. Some accounts require both signatures. What happens if your children live across the country and your investment matures? Or, when you need funds to take a trip, you may need their signatures and consent. Another problem is that joint accounts may become part of creditor proceedings if one of the joint account holders declares bankruptcy.
Even worse, a joint account can be named as an asset in a marriage or common-law relationship breakdown and may be subject to division. If you have more than one child, the accounts that have only one child as joint account holder can cause family disputes, increasing the costs. Another common problem is taxation. If you put your children on as joint owners of your principal residence, they may lose that principal-residence exemption and create a potential capital gain. Also it may eliminate qualification for the first-time home buyers’ program. With proper planning and strategies, probate fees can be reduced or eliminated.
Creating joint accounts to simplify probate fees and estate planning should be carefully thought out. Consider designating your children as beneficiaries through investing with life insurance companies, and consult your financial advisor.
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Published with permission from Grant Hicks