While it may seem like a straightforward way to manage assets, joint ownership can bring unexpected complications. In this article, I’ll discuss the complexities, risks, and alternative strategies to help you navigate this crucial aspect of estate planning and protect your family's financial well-being.
Risks of Joint Ownership
One major issue is that once an asset is jointly owned, it becomes the property of both parties. This means that the adult child has an equal right to the asset, which could result in unintended consequences. For example, if your adult child were to get divorced or be sued, the jointly held asset could be at risk. Additionally, if your child predeceases you, the asset could pass on to the child's heirs rather than the parent's intended beneficiaries.
Unwanted tax consequences
Another issue to consider is the potential tax implications of making assets joint with an adult child. For example, if a parent adds a child as a joint owner of their principal residence, they may lose the principal residence exemption for capital gains tax purposes. This could result in significant tax implications if the home appreciates in value.
Alternative Options
Instead of making assets joint with adult children, there are other estate planning strategies that could be more appropriate for your situation. For example, setting up a trust can provide more control over how assets are distributed and protect them from creditors or lawsuits. Additionally, naming beneficiaries on registered accounts such as RRSPs, TFSAs, and insurance policies can allow for a smooth transfer of wealth without the need for probate.
Final word
It's important to speak with an expert in estate planning to determine the best course of action for your specific situation. They can help you understand the potential risks and benefits of different estate planning strategies and help you make informed decisions to protect your assets and ensure they are distributed according to your wishes. Don't leave your estate planning to chance – take the time to speak with a professional and ensure your wishes are carried out.
