The Hidden Dangers of Adding Adult Children as Joint Owners
Before adding an adult child as a joint owner, families should first ask what problem they are trying to solve. A recent case illustrates the potential pitfalls: a grandmother sold her home and placed $1 million into a joint account with her three adult children. When one child predeceased her, that child's adult children were effectively cut out of their expected inheritance. Because the account was structured as joint tenancy with rights of survivorship, the deceased child's interest passed automatically to the surviving joint owners, bypassing the estate entirely. The result? The grandchildren no longer speak to their aunt and uncle.
It is easy to understand why families choose such arrangements. A parent may want to avoid probate fees and delays, or seek convenience in daily banking. However, this practical shortcut can carry serious unintended consequences.
The Risks of Joint Ownership
First, once a child becomes a true joint owner, they may gain control over future decisions involving the asset. If the parent later wants to sell, refinance, or renew a mortgage, the child's consent may be required. What seems convenient can lead to loss of control, especially if disagreements arise.
Second, the child's personal circumstances can affect the asset. Marital breakdown, creditor claims, or legal proceedings can expose the property to claims or litigation. In a divorce, jointly owned property can influence how net family property is valued and divided, depending on provincial rules and prenuptial agreements.
Tax consequences also loom. Adding a child to the title of a principal residence may jeopardize the principal residence exemption if the child does not live there. While joint ownership may avoid probate, it does not eliminate deemed disposition and income tax on death.
Families should seek professional advice before pursuing joint ownership. A careful review of intentions, structure, and applicable laws can prevent costly mistakes and preserve family harmony.
