Unintended Consequences

A joint account may seem like a quick and easy way to be able to help out a parent or grandparent with their finances or work toward a common goal with a significant other. Despite the convenience, however, joint ownership of assets can have some pretty serious pitfalls if you chose this route in the wrong situation. Here are some of the most common situations where joint ownership can hurt more than it helps.


  1. If you are a joint owner of a taxable investment account you would only get a cost basis step up on half of the account since the deceased technically only owned half. So, if you are made joint owner to help dad with his investments and he passes unexpectedly, you could miss thousands of dollars in potential tax savings from stepped up basis. This also applies to property.


  1. For estate purposes, half of the account will still be taxable at your state’s rate as the surviving co-owner’s “inheritance”. For a husband and wife in PA this rate is zero, but if you’re not a spouse half will be considered taxable inheritance.


  1. Both owners have full rights to the money. This means one could clean out the account without the other knowing. It also means that in an elder care situation, Medicaid can claim the full amount in the account


  1. Whenever you put money into a joint account it is owned by both parties completely for better or worse. This means that that money becomes subject to any creditors for either person.


So, despite the guise of being easier to work with, joint accounts can leave you high and dry, especially if not held between spouses. There are other much more effective ways to help a family member or friend manage their finances without unintended consequences. Don’t hesitate to seek professional help with these issues as they can be complicated and costly if not thought out.