Sometimes Seemingly Simple Estate Planning Ideas Add Complexity and Confusion

Why is giving title of your assets to your children not a good idea?

Contemplating one’s own death is never easy, so we often look to simplify the estate administration process. Unfortunately, unless we do this with the assistance of a competent estate planning attorney, we are likely to create additional issues.

Adding your children to the title of your assets, so that they already have possession of your assets if you become incapacitated or die, may seem appealing. The idea here is that, once you put your child’s name on your home, bank accounts, vehicles or any other titled assets, that property avoids probate when you die and passes directly to your child.  In addition, your child is able to manage these assets if you become physically or mentally incapable of doing so.

Your intention is to make for a smoother transition if you are incapable of managing your own affairs or when you die. You fully expect that the child to whom you give this responsibility will share the remaining property with his or her siblings when the time comes.

There are two major problems with this line of reasoning. One is that, by putting your child in co-control of your assets, you make those assets vulnerable to his or her actions. The other is that the arrangement may not be carried out as you wish and may provoke family disputes after you die.

Your Assets Become Vulnerable

If the child that you added to the title of your assets gets into legal difficulty of any kind (causing vehicular damage or personal injury, being on the wrong end of a lawsuit, getting arrested, getting divorced), your property is in jeopardy. Because all of your assets belong to your child as well, they can be used to settle any judgment against him or her.

Your Wishes May Not Be Carried Out and You May Inadvertently Cause Family Conflicts

Typically, when you add a child to the title of your assets, you choose the child who has the easiest access to your affairs, usually the child who lives closest to you. Even though, in this scenario, you make it clear to all of your children that this decision is being made for convenience, and that you intend for all your children to inherit equally after you die, this may not happen.  Legally as a co-owner of your assets, upon your passing, the child is entitled to 100% of the assets.   That child has no legal responsibility to split the assets with his or her siblings.

All too often, the child who is given title to the assets is also the child who assists you during your declining years. This child is frequently the one who shepherds you to doctor appointments, on shopping expeditions and social visits, and also arranges for, or performs, household cleaning, banking, bill paying, and so on. For this reason, when it comes to dividing up the assets after you pass away, this child may feel entitled to the lion’s share of the assets and be unwilling to share equally with his or her siblings resulting in family conflicts.

The way to avoid both of these pitfalls is to create a living trust with the accessible child named as co-trustee or successor trustee. This allows that child to step in and take control when you become incapacitated, but avoids the problem of co-ownership. With the living trust in place, the designated child would not own the assets in question, so they could not be attached in case of any lawsuit or financial difficulty of the child. In addition, at the time of the parent’s death, the designated child would have to distribute the remaining assets according to the instructions the parent has written into his or her living trust. It would not be possible for the child who is named as trustee of the living trust to change the terms of the living trust or the beneficiaries.

This being said, it is wise for the parent to take into account the extra burden put on one child during the parent’s declining years, since, if this is not done, family disputes and hard feelings may still surface. It is often wise to provide the caretaking child with an allowance while you are still alive to pay for groceries, gas, car maintenance and other additional expenses they incur.

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