Putting your children’s names on your assets, can cost you more than you think.

Part I of a three part series.

Most married individuals, who have jointly owned property, are familiar with the concept of “joint tenancy.” (Joint tenancy is a form of property ownership that automatically transfers complete ownership of a jointly held asset to the survivor upon death.)

It is this unique feature; that is, the right of survivorship, that provides a simple and efficient means of transferring property upon one’s death without the need or costs associated with probate. Thus, when you and your spouse own a home, stock, mutual fund, bond, certificate of deposit or other asset jointly, then upon your spouse’s death, his/her interest in these assets transfers to you immediately and automatically.

Unfortunately, this method of conveying property to a named survivor works so well, that many widows and widowers make the mistake of relying on joint ownership as the sole means of transferring their assets to their children without realizing the financial and legal pitfalls that are inherent in placing their children’s names as joint owners of their assets.

The unforeseen problems that can arise by adding your children to your assets as joint owners include: gift taxes, capital gains taxes (i.e. loss of stepped up basis), exposure of assets to the child’s liabilities, and loss of control. In this article we will discuss the gift tax consequences associated with adding your children as joint owners of your assets.

Gift Taxes. One of the reasons that joint ownership works so well between spouses is that the Internal Revenue Service exempts all transfers of assets between spouses from the affects of the gift tax. Unfortunately, this exemption does not extend to your children.

Thus, if you seek to avoid the probate of your assets by adding your child as a joint owner, in the eyes of the IRS you have made a gift of one half of the value of the asset to your child. If the value of the interest being transferred exceeds $11,000.00, you will either have to pay a gift tax on the transfer, or use part of your applicable exclusion to avoid the tax.

Capital Gain Taxes. Another problem associated with using joint tenancy to transfer your assets is that the person receiving the gift receives it with your original basis. Thus, upon your death, while the property will transfer to the survivor without probate, they receive one half of the asset with your original basis. Now, when they sell the asset, they will have a larger “profit” to report and pay a capital gains tax on that portion of the sale that was a gift to them. (Assume you purchased a home for $100,000.00. Following the death of your spouse you decide to add your child as a joint owner to insure that title passes to him/her without the need of probate. If the home is sold by your child following your death for $250,000.00, your child will have to pay a capital gains tax on $75,000.00 of the sale as the result of your earlier gift.) If your assets have substantially increased in value, this can result in a large tax burden for your children.

All of these problems, as well as others, can be avoided or minimized with appropriate estate planning.


In the next addition of Senior Advice we will discuss how adding your children’s name to your assets can result in you loosing control.

The information contained in this column is intended to supply general information to the public regarding Illinois law and is not intended to constitute legal advice.

This column is intended to encourage the reader to seek competent legal advice for their legal needs and as such is intended to be advertising, and is not solicitation, nor the offering of legal advice.

Philip J. Vacco, Attorney at Law ©

(815) 254-3460