When families want to avoid probate court, they often hear the following well-meaning advice from friends, neighbors or relatives: “You don’t need an attorney,” “Just put your child’s name on your bank account” or “Add your son or daughter to the deed.”
While these strategies may seem simple, they can create serious legal, financial and family problems that many people never see coming.
The Hidden Risks of Adding a Child to Your Assets
Imagine a parent adds their adult child to a bank account or places their child’s name on the deed to the family home. The goal is usually straightforward: Make things easier when the parent passes away.
However, doing so can expose those assets to risks that previously did not exist.
If the child gets divorced, sued, files bankruptcy or has creditor issues, the parent’s assets may become entangled in those legal matters. In some situations, a child’s ownership interest could become a target of creditors.
Additionally, if there are multiple children, adding only one child to an account or property can unintentionally create resentment and disputes after death.
The Tax Consequences Many People Overlook
Adding someone to property can also trigger gift tax reporting requirements and create capital gains tax issues that may have been avoided through proper estate planning.
What appears to be a simple solution can sometimes become a costly mistake.
“Avoiding Probate” Should Not Be the Only Goal
Many people focus exclusively on avoiding probate. While probate avoidance is often desirable, it should not come at the expense of asset protection, tax planning or family harmony.
A properly prepared estate plan considers all of these factors together.
Better Alternatives Often Exist
Depending on your circumstances, there may be better options available, including:
- Revocable living trusts
- Transfer-on-death designations
- Beneficiary designations
- Lady Bird deeds
- Durable powers of attorney
These tools can often accomplish the same goals while reducing unnecessary risk.
Every Family’s Situation Is Different
What works well for one family may be completely wrong for another. Estate planning is not about finding a one-size-fits-all solution — it’s about creating a plan that protects your assets, honors your wishes and makes life easier for the people you love.
Before adding a child to a deed, bank account or investment account, consider speaking with an experienced estate planning attorney to understand all of the potential consequences.
A few minutes of planning today can prevent years of problems tomorrow.
Mark Strek, Esq. is the founder of Heiritage Law PLLC, an estate planning and probate law firm serving families throughout Macomb, Oakland and St. Clair Counties. Call 586-465-2331 or visit www.heirlaw.com to schedule a complimentary consultation.
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