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December 2012

Unintended Consequences

Family arrangements - Risks with jointly-owned assets

We have noted a growing trend within families whereby the elderly parent who has assets (such as bank accounts) transfers them from sole ownership accounts into joint accounts with one or more of their adult children.

This transfer is intended to assist with the operation of those accounts (for example, where it may be difficult for the elderly parent to travel to the Bank branch). However, the legal effect is to make those accounts jointly-owned by both the elderly parent and the adult child. That means that:

  • (a) on the death of the elderly parent, by the law of survivorship, the accounts will belong solely to the adult child as their separate property, irrespective of what the elderly parent’s Will may provide;
  • (b) if the adult child were to get into financial difficulties (such as bankruptcy) THEN the accounts could be claimed to cover the adult child’s debts;
  • (c) if the adult child were involved in a relationship property dispute, the accounts could be dragged into that dispute.

Most clients have not appreciated the potential risks that they are running in creating jointly-owned accounts.

The answer, to avoid these unintended consequences, is for the elderly parent to nominate an additional signatory to the accounts. This enables the adult child to assist with the operation of these accounts, without transferring ownership to the adult child. It is a simple alternative to assist the elderly parent without giving ownership to the adult child AND it avoids the risks mentioned above.