MAY 22, 1995 VOLUME 2, NUMBER 46
Many people put all their assets in "joint tenancy with right of survivorship" intending to avoid probate, lawyers and taxes. Sometimes the idea comes from bank tellers, escrow agents or friends and neighbors; the ease of such an arrangement can certainly be attractive in the right case.
Despite the popularity of joint tenancy titling, it is not always appropriate. While joint tenancy between husband and wife is seldom a problem (though many married couples should be looking into the new "community property with right of survivorship" option), difficulties frequently arise when property is jointly owned with children or others.
What is most often overlooked in establishing joint tenancy accounts is the fact that each joint tenant has the power to withdraw and use the entire account without giving notice to the co-owner. This is true even though one owner contributed all the money in the account; the establishment of a joint tenancy arrangement amounts to a gift at the time, rather than a bequest on death.
Of course, most children (or other joint tenants) will not abuse the trust placed in them. A few will, however, and experience indicates that even "good" children end up in legal disputes with their too-trusting parents. It is possible that the child's bankruptcy, automobile accident or financial problems could tie up the assets, even if the child does not try to take advantage of the account.
When the purpose behind joint ownership is to make the funds available "in case something should happen," there are easier and safer ways to do so. Banks have power of attorney signature cards that do not require a lawyer or legal forms. One problem: when customers request such signature cards, they are frequently given joint tenancy cards instead. This almost always happens if the customer simply asks to "put my child's name on" the account, rather than asking for a power of attorney form by name. A power of attorney prepared by a lawyer will be honored by the bank even without the bank's form.
Probate can also be avoided without titling accounts in joint tenancy. Bank accounts can be designated as "payable on death" to another, thereby accomplishing what the owner wants (easy distribution to survivors) without getting into the joint tenancy morass. Brokerage accounts can be titled as "transfer on death," which has the same effect.
There are other problems with joint tenancy. The owner's Will does not affect the joint tenancy account, so leaving one of several childrens' names on the account can be dangerous. In some cases, there may be adverse income tax consequences to joint tenancy. In short, account owners should be sure they are getting the result they want before simply placing childrens' names on bank and brokerage accounts.