Elaine M. Watrous, CLPF

Elaine M. Watrous, CLPF

Elaine Watrous is a licensed, professional fiduciary at the Law Offices of Donald A. Hunsberger. For more information, she can be reached at (714) 663-8000

Whoever said two things in life are certain - Death and Taxes – should have added a third one to that list: Sibling Rivalry. Unless you subscribe to the old Chinese rule of only one child, chances are you have experienced the ugliness of sibling rivalry in your own family.

We expect to see this undesirable behavior during childhood but we certainly don’t expect grown adults to exhibit this immaturity after the death of one or both of their parents when they should be pulling together & cooperating with each other.

Raising competitive kids in America unknowingly helps breed contempt when parents who want the best for their children enlist them in various sports, classes, and lessons designed to bring certain skills and accolades to their child.  As praises are brought forth in everyday conversations by parents, these forms of flattery are often seen by the child who is not getting the attention as an eyeball-rolling event. Parents will try to even out the score by praising the other child at some point in the future only to add another opportunity for eyes to roll or punches to throw. These times certainly are not unnoticed by either child and adding a third child to the mix only helps pit the “two against one” mentality throughout all of eternity. 

What is heartbreaking is that we see some form of sibling rivalry every day at our law firm. It occurs when one of the adult children prompts a consultation with the attorney to redo their parent’s trust documents.  It even occurs when mom or dad brings all of their children in an effort not to play favorites. The first hint of discord comes when we ask the “kids” to leave the room as they whisper something in our ears that we should know about mom or dad. 

Family discord also occurs after mom or dad passes away when two or more siblings disagree on how their assets should be treated. As each one excuses themselves to make a phone call or take a bathroom break, we get the Campbell’s Soup condensed version of why the other sibling isn’t fit for service. Even though the trust documents and California law leave a blueprint of instructions for those who are put in positions of trust, many adult children seem to think they can still call the shots and do things as they’ve always done in the past, putting their vulnerable siblings at risk.

Wise parents who want to avoid
post-death shenanigans or mistakes by their adult children should consider listing a private professional fiduciary in their trust documents

It is challenging to ask a trustee to think and act like a trustee, not just like a beneficiary, if they happen to be one and the same. Mistakes made by the trustee-beneficiary often require untangling by the attorney’s office which would have not been necessary if mom and dad had named a trained trustee who knew what to do. Wise parents who want to avoid post-death shenanigans or mistakes by their adult children should consider listing a private professional fiduciary in their trust documents. A private professional fiduciary is well-trained in what needs to be done, can accomplish the necessary tasks in a timely and cost-effective manner, and can even save your estate money in the long run. With your attorney’s help and that of a private fiduciary, you can be sure that your final wishes will be honored and your children will avoid the all-too-often emotionally charged conflicts that tears families apart.

Joint tenancy is often referred to as a “poor man’s will” which is a simple and inexpensive way to avoid probate but it is not appropriate in many cases.  Except between spouses, joint ownership is usually a bad idea. Joint tenancy property passes to the surviving joint tenant, regardless of your Last Will.

Despite your best intentions, there’s a trap in holding joint tenancy ownership with an adult child when trying to avoid probate or for “convenience” that you may not have considered. While you may achieve the goal of delaying probate at the first death, your hard-earned assets may be jeopardized by your child’s debts, lawsuits or divorce, and are fraught with other problems.

Joint tenancy ownership occurs when two or more names are placed on bank accounts, stocks, bonds, or real property deeds. By operation of law, when one of the joint tenants dies, the survivor automatically owns the entire asset. Having your joint tenant automatically receive your asset at your death may not be what you intend or may not even be in your heir’s best interest.

Even though there is no probate when the first joint tenants dies, the deceased owner has lost control over the asset and the property may still be subject to the probate process upon the second death.

Consider a husband and wife who owns their home in joint tenancy. When the husband dies, the property passes to the wife. When the wife dies, the property will still be subject to probate, an expensive and time-consuming process.

The problem is compounded if they have a blended family with children from different spouses. In this case, the husband’s children would be completely disinherited because they are not heirs of the surviving spouse.

Even in marriages with common children, if the wife adds an adult child to her accounts or real property deeds for “convenience” in managing her day-to-day financial affairs, or thinks it is the best way to give them their inheritance now, it is not the best strategy for a number of reasons.

Unequal Distributions

Upon mom’s death, the entire account or property will pass to the remaining account holder even though mom would have naturally wanted it to be divided equally among all of her children. Absent a better plan, if she would like to leave something to her grandchildren of the non-joint account holder, those grandchildren would lose out on their intended bequest as well. The surviving co-owner can do with it what they please, with no legal obligation to the others.

Exposure to Creditors

In the event of an automobile accident (for example) and mounting medical bills that your joint tenant cannot or will not pay, your hard-earned assets will be subject to your joint tenant’s potential debts, lawsuits, liens, judgements or bankruptcy. In cases where government entities are involved, such as the IRS or Medi-Cal, joint tenant assets are likewise subject to seizure, sale or collection.

Division in Divorce

If your child should get divorced, that child will be required to disclose all assets to their spouse, including any interest in joint accounts. Under the wrong circumstances, the divorce court could regard those joint accounts as marital property, which is divided in the property settlement.

Decision to Re-convey Property

If you decide that you want to sell, refinance or otherwise re-convey your property, your joint tenant must agree and be willing to sign the deed and appropriate paperwork. If your joint tenant refuses, or no longer has capacity to sign, you may have to seek a court-order to protect your own assets.

Disagreement with Joint Tenant

If you have a falling out with your joint tenant, your co-owner will be able to take all of the money out of the bank accounts without your knowledge.

Joint tenancy ownership occurs when two or more names are placed on bank accounts, stocks, bonds, or real property deeds.

Loss of Stepped up Basis

Heirs are to receive the benefit of a “stepped up basis” for tax purposes when property is transferred at death. If an asset is owned in joint tenancy, then the percentage interest of the deceased person only gets the stepped up basis. When the asset is then sold, the surviving joint tenant may have to pay substantial capital gains tax on his or her portion of the asset.

The advice of a knowledgeable estate planning attorney can meet your ultimate objectives, save significant taxes and avoid the pitfalls discussed in this article.

As you can see, the downside of joint tenancy outweighs any upside. Please consider these risks carefully before holding property in joint tenancy with your adult child. A revocable trust is much better than joint ownership for estate planning. During the client’s lifetime he or she retains the right to use and enjoy the property and, when property is held in trust, there is no need for probate. With appropriate planning, many of the traps of joint tenancy can be avoided. The advice of a knowledgeable estate planning attorney can meet your ultimate objectives, save significant taxes and avoid the pitfalls discussed in this article.

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