Putting your adult child’s name on your assets may seem like a good estate planning option, yet there are some very serious drawbacks. Young adults are likely to be less responsible than their parents. An adult child is also vulnerable to many life changes that create risk to your assets such as divorce, bankruptcy, tax problems with the Internal Revenue Service, legal issues, injuries and illness. Also be aware that when titling assets jointly, the process to reverse same may not be easy. The following risks are important to note:
1. Divorce – divorce can financially devastate the participants and generally splits the estate assets, so that at least one half of an adult child’s assets can be in jeopardy, including any jointly titled assets with the parent or parents.
2. Bankruptcy – similar to divorce, a bankruptcy places all of the adult child’s assets at risk, only this time the pursuer is an aggressive bankruptcy trustee whose job is to recover as much money as possible for the creditors of that adult child.
3. Tax issues – young adults often face tax problems and this triggers the sweeping powers of the Internal Revenue Service and the possibility of tax liens on any and all assets to which the child’s name is attached.
4. Legal problems – accidents due to DUIs and civil or criminal judgments could result in judgment liens upon all assets that have the child’s name on them.
5. Health concerns and injuries – young adults may be subject to injuries due to an active lifestyle or may experience medical emergencies such as heart attacks and medical bills. If the young adult does not have health insurance or is unable to pay the associated medical bills, this can pose substantial risk to all assets which have the child’s name attached.
Solution Revocable Trust
A Revocable Trust allows you to title the assets in the name of the trust rather than individuals. An adult child may still be a beneficiary of the trust, yet there is zero risk that the assets will be exposed to any of the beneficiary’s creditors. A trust also provides asset protection for beneficiaries so that your children can be protected from creditors even after your death.