Serving as an executor (or personal representative) can be a lot of work and take a lot of time, so it’s understandable that you would want to reduce the hassle for your loved ones as much as possible. As a financial advisor, I often hear people talking about various estate planning strategies they wish their deceased parents had used to make things easier on them as the executor.
But sometimes what seems obvious and simple at first glance can potentially create major complications. One such strategy is the recommendation to establish a joint checking account with your executor. The intention behind this advice is to allow easy access to funds upon your death. The reality is that this approach can lead to a lot of complications and risks.
Legal Vulnerability
One of the biggest concerns with having a joint checking account with your executor is the potential for legal vulnerabilities. If you list someone on your account as a joint OWNER, then they are in fact an owner. If that person faces personal legal issues (like a lawsuit, bankruptcy or divorce) the funds in your account could be at risk. This means that the money you intended to be used for your final expenses, could end up in the hands of a creditor or your ex-in-law.
Distrust Amongst Beneficiaries
Nothing evokes more emotion than death and money. Consequently, family disputes during estate settlements are very common. While it’s impossible to guarantee a conflict-free estate resolution, joint accounts can create distrust amongst your beneficiaries. When assets are held in a joint account, they may not be included in the estate’s total value during probate. This could lead to confusion or conflict among your heirs. Your heirs may feel that the executor is mismanaging or unfairly controlling the funds. Transparency is crucial in estate planning, and joint accounts can complicate this transparency.
Gift Tax Implications
Adding a joint owner to a checking account can trigger gift tax implications. If the account balance exceeds the annual gift tax exclusion limit, the IRS could consider the addition of a joint owner a gift. Depending on the size of your estate and the size of the account that you added the joint owner to, this could present an unexpected estate tax implication.
I recently read an article in a popular retirement magazine where the author suggested this joint ownership strategy as a “tip”. The strategy of adding children as joint owner to assets is a common one. It’s common, but that doesn’t mean that it’s without risk – and the risks often far outweigh the benefits.
Estate Planning tips come in from all directions. Friends have advice. Magazines have advice. You might even have personal experience. Regardless of where you got them, it’s usually best to talk through estate planning “tips” with your financial advisor and your estate planning attorney. They can point out things you might not have thought of and help you make the move that’s right for your family.
At Impact Wealth Management, we are committed to helping you navigate these complexities and design financial strategies that align with your goals and your estate plan. The information in this blog is for educational purposes only and should not be considered a substitute for legal advice.