Why you should avoid joint titling of assets with adult children

Putting your adult child's name on your assets may seem like a good estate planning option and a good way to avoid probate, yet there are some very serious drawbacks to this approach.  Young adults are likely to be less responsible than their parents.  An adult child is also vulnerable to many life changes that can 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 be financially devastating to the participants. Generally the court splits the estate assets between the participants, 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. In performing their job, the trustee may force the sale of a jointly owned asset in order to recover the adult child's share for distribution to the creditors.  This could end up with your home, car or other asset being sold, and then you are without the asset, having only half the value in the form of cash.

  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. Once again, like bankruptcy, this could place your house, bank account or other assets at risk of seizure by the Internal Revenue Service and losing the roof over your head or the automobile you need to get to work, doctor, or other important destinations.

  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. If the adult child does not have adequate insurance coverage to pay the judgment entered against them, or the judgment is so large that it exceeds the insurance coverage, any asset that you have jointly titled in that child's name with you becomes a target for the creditor or plaintiff to seize to satisfy the outstanding judgment.  It does not matter that you place the child's name on the asset or assets as part of your estate plan.  By jointly titling an asset or assets with your children, you have given them an ownership interest in the asset or assets.

  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 as described in the paragraphs above.

  6. Reversing the process – Once you title an asset jointly with your child, it is not a simple procedure to reverse. As a result of the joint titling, the child now has total control of their interest in the property and cannot be forced to give the property back unless a lawsuit is filed to partition the interests of all the owners. This type of lawsuit can be expensive, divisive and leaves no clear winners and lots of hard feelings when it is concluded.

Solution – Revocable Trust

A Revocable Living 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.  The Trust will also avoid probate.  It will also give you the opportunity to control what happens with the asset long after you are gone.  Joint titling of an asset provides no protections or ability to impose conditions to protect the assets, the child, or both.