- Written by Jonathan J. David Jonathan J. David
Dear Jonathan: I am a widower and have five adult children. Rather than engage in any formal and costly estate planning, I plan to keep it simple by adding my daughter’s name to the title of my assets.
My assets include my home and bank and investment accounts. I also have two life insurance policies and an IRA, and I plan to name her as the beneficiary of those investments.
This way, after I die, all of my assets will end up in my daughter’s name without having to go through probate, and then she can divide everything with her brothers and sisters.
She is willing to do that, and I trust her completely. What do you think?
Jonathan says: I know that adding your daughter to the title (and naming her as the beneficiary) of your assets seems like an easy solution and is tempting, but it is not a good plan to pursue for a variety of reasons.
Those reasons include:
1. Upon your death, your daughter would now be the legal owner of those assets and would not be legally required to share any of those assets with her siblings.
2. When you add your daughter to the title of your home and bank and investment accounts, you are in effect gifting her a 50% interest in those assets. Under current law, an individual can make gifts of up to $15,000 per person per year gift-tax free; any amount in excess of $15,000 is deemed to be a taxable gift, which will require the filing of a gift tax return with the IRS.
3. When your daughter divides the assets with her siblings, she will in effect be making a gift to each of them, and any gift in excess of $15,000 will be taxable and require the filing of a gift tax return with the IRS.
4. If your daughter is married and goes through a divorce after she has been added to the title of your assets but before she divides them with her siblings, those assets could end up getting caught up in the divorce proceedings.
5. Your daughter’s ownership interest in your assets prior to her dividing them with her siblings could be made subject to a bankruptcy filing involving her or to the claims of any of her creditors.
6. Since your daughter would now be the legal owner of your bank and investment accounts, any interest generated by those investments before she divides them with her siblings will be taxable solely to her.
7. If your daughter passes away prior to dividing the assets with her siblings, those assets will pass through her estate, and your other children will end up getting nothing unless your daughter has named them as beneficiaries in her estate plan.
Naming your daughter as a co-owner of your home is problematic for many reasons. Since this requires a lengthier response than I have room for in this column, my next column will be devoted solely to this topic.
Instead of adding your daughter to the title of your home and your bank and investment accounts, and naming her as the beneficiary of your life insurance policies and IRA, the better plan is for you to:
- Set up a trust and retitle your home and your bank and investment accounts in the name of your trust.
- Name your trust as the beneficiary of your life insurance policies.
- Name your children as the beneficiaries of your IRA.
Taking these steps will not only protect you, but will also serve to protect your daughter and your other children.
I recommend that you meet with an estate planning attorney, who can review all of this with you in more detail, as well as explain how engaging in estate planning, including the preparation of a trust, would be beneficial to you, your daughter, and your other children. Good luck.
Jonathan J. David is a shareholder in the law firm of Foster, Swift, Collins & Smith, P.C., 1700 E. Beltline N.E., Grand Rapids, MI 49525.