Legal professionals are often asked whether it is a good idea to add an adult child to the title of a home, bank account, or other asset. This usually occurs in the context of a conversation about estate planning. There certainly can be benefits to adding an adult child to title, but there are serious risks or drawbacks to doing so, especially when it is done in a hurried way.
The asset would be considered jointly owned by the parent and adult child without proof that the child holds only a ‘legal interest’, rather than a ‘beneficial interest’ in the asset. Without proper preparation or documentation, it may mean that the asset is a target for repayment efforts by the creditor.
While a creditor pursuing repayment in this way may not seem high-risk for many families, relationship breakdown may be a more common risk. The ending of a legal or common-law marriage of the adult child on title can lead to a division of assets process. If the adult child is on a piece of real estate or a bank account then, without proper steps taken when they were added to title, you could end up unwillingly involved in a spousal claim arising from the breakdown of the relationship.
In addition, another family risk can arise between one’s own children with unforeseen consequences of adding one child to the title of a home or bank account. Placing assets in joint ownership with one child, especially if the siblings do not get along, can result in legal trouble but also further hurt relationships between siblings.
Even in families where siblings are amicable and even when entering into such decisions with the best of intentions, it’s possible for the situation and relationship dynamic to still change. Should one child take on the lion’s share of responsibility for end-of-life-care or decision-making, that child may feel entitled to a larger portion of the estate. The title-holding child could simply hang onto an asset that was already in their name. A similar situation could occur should one of the children be primarily responsible for financially supporting the parent.
It’s easy to think that your child will ‘do the right thing’ when it comes time, but the situation is not that simple. There is a risk of a dispute arising for any number of reasons beyond those already outlined.
A relatively simple but important way to avoid a situation like this is to ensure that you have carefully documented the intentions or reasoning behind adding a child to title. By carefully documenting your intentions and expectations regarding joint ownership, you create the opportunity for mutual understanding between parties and eliminate the need to prove the intention in court.
This can prevent many disputes from occurring in the first place and potentially prevent the potentially irreparable harm to family relationships. Professional estate planners can often work with other professionals such as lawyers, accountants, and financial planners to ensure the intention of joint ownership is clear to all.
Knowledge of both the legal and non-legal complications is part of how an estate planner can help you make the best decision for you and for your family. We strongly recommend seeking out professional advice prior to adding a child to title or any kind of joint ownership.
