The Pluses and Minuses of Retitling Assets
We Americans have fairly standard ways in which we title assets. One of them is, as to married couples, to title the family home and banking and investment accounts jointly in the name of husband and wife as tenancy by the entireties. When either spouse passes away, the survivor is often left with a choice. She could keep the assets in her own name or she could add her children’s name or names to the title.
The decision that a parent makes regarding joint titling of assets has legal consequences no matter what she does and those consequences might not be obvious. If there are goals involved in retitling, the first step should be to decide what those goals are. Here are come common reasons given.
Joint Titling for Convenience. Many parents state that their reason for titling their banking and investment accounts jointly with one of their children is for convenience. They want their child to be able to sign checks and pay bills. If the account is a simple checking account into which the parent’s monthly checks are deposited and bills paid with no significant cash balance, there is no real concern although the same result could be accomplished by giving their child a Durable Financial Power of Attorney.
On the other hand, I have seen sizeable estates where one child is named joint owner on investment accounts to the exclusion of all other adult children. The effect would typically be that the entire balance of the account will go, on the parent’s death, to the child who is joint on the account. If this is not the result intended, then the parent might consider a Durable Financial Power of Attorney instead.
Another consideration in joint titling is the creditworthiness, stability, and fiscal solvency of the adult child. Having said this, it is still true that many dependable adult children have their names with their parent’s name on accounts, especially the basic checking accounts used for bills as described above, as joint tenants with right of survivorship, with no serious consequences.
Joint Titling to Avoid Probate. Some seniors jointly title their assets because they have heard that this may avoid probate. Property titled as joint tenants with right of survivorship does pass directly to the joint owner without probate.
One confusion for many property owners, however, is the belief that avoiding probate is the same as avoiding taxes. It is not. There may be a break on Pennsylvania state inheritance taxes on one-half of the value of the assets on a parent’s death if the property is jointly titled. The parent must have lived for a year after adding the adult child’s name to the account for this to apply.
Joint Titling Intended to Avoid Nursing Home Costs. Generally speaking, especially since the federal Deficit Reduction Act effective February 8, 2006, transferring assets to children is more likely to cause problems for middle class Americans attempting to qualify for Medicaid to pay for nursing home care than it is to solve them. Having said this, however, there are some exceptions that can be considered specifically as to joint ownership as opposed to outright gifting.
First, the type of asset makes a difference. Real estate is treated differently from bank accounts.
If an adult child’s name is added as joint owner to banking and investment accounts or bonds or CD’s but the funds came from the parent, usually the accounts, bonds or CD’s will be treated as though they still belong entirely to the parent. There would be no penalty but no benefit either. The funds would be spent toward the parent’s care.
Occasionally, if the joint titling goes back many years, the account or bond or CD could be viewed by a caseworker as a gift by the parent to the child with each of them owning a proportionate share. This result should not be taken for granted. Practically speaking, it would be best for the adult child to be able to demonstrate she did actually contribute one half of the value of the account from her own funds.
As to real estate, where an adult child’s name is added to the deed to the house, this would be considered a gift of one-half of the house’s value unless an exception applies. What these exceptions are would involve more explanation than could be covered in this column.
The titling and retitling of assets is a very tricky act and should be done only with full understanding of the consequences.
About the Author Janet Colliton
Esquire, Colliton Law Associates, P.C. Janet Colliton has practiced law for over 38 years, 37 of them in Chester County, Pennsylvania, a suburb of Philadelphia. Her practice, Colliton Law Associates, PC, is limited to elder law, Medicaid, including advice, applications and appeals, and other benefits planning including Veterans benefits, life care and special needs planning, guardianships, retirement, and estate planning and administration.