Owning assets with your adult child as “joint tenants with right of survivorship” may seem like a simple way to streamline your estate plan; however, doing so can carry important legal, tax and practical implications that deserve careful consideration.

Positives and negatives to joint ownership

There are upsides to jointly owning assets such as real estate, a bank or brokerage account, or a vehicle with your child. For example, after your passing, the asset will automatically pass to your child without the need for more sophisticated estate planning tools and without going through probate.

The downsides, however, can be considerable. When you add a child as a joint owner of an asset, he or she typically gains immediate ownership rights to the asset—not just a future interest. This means it may be subject to the child’s creditors, a divorce settlement, or lawsuits. These external risks will be beyond your control and can jeopardize assets you’d planned to use to support yourself during retirement.

There can also be significant tax considerations. Adding a child as a joint owner may be treated as a taxable gift, depending on the asset and how ownership is structured. In addition, joint ownership can eliminate the step-up in cost basis that beneficiaries often receive at death, potentially increasing capital gains taxes when the asset is later sold. What appears to be a probate avoidance strategy can, in some cases, create a larger tax bill for the next generation.

Finally, joint ownership can override the intentions expressed in your will or trust. Assets held jointly with rights of survivorship generally pass directly to the surviving owner, regardless of what the estate plan says. This can unintentionally disinherit other children or beneficiaries and lead to family conflict. For many families, alternatives such as powers of attorney, beneficiary designations or revocable trusts provide greater flexibility and protection.

What’s the right move for you?

Jointly owning assets with your child is a decision that you should make with care, not solely for convenience. While it may simplify access or avoid probate in some cases, it can also expose assets to unnecessary risk, create unintended tax consequences, and undermine the goals of your otherwise well-structured estate plan.

Together with your estate planning attorney, we can help evaluate how joint asset ownership might fit into your broader estate plan and ensure that your assets are protected, family harmony is preserved, and your wishes are carried out as intended.

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