Editor's note: Lisa is off this week, so we are sharing one of her columns from April 2011. Enjoy!

My mother is in her late 70s. Because her health is starting to fail, I put her assets jointly into her and my names. That way, I can help her manage things if she develops dementia or some other illness. I have always understood that this was the best way to handle this type of situation Can you tell me more about holding assets jointly?  Thanks, Lisa – Alex

Hi Alex!

It's true that you would be able to manage your mother’s assets if she became ill. People often put an elderly parent’s assets into accounts for just this reason.

However, putting assets into your joint names isn't the best way to handle this. For example, when assets are held in a joint account and one of the owners (and you are legally an owner, even though you are doing this for the sake of convenience) dies, the survivor gets all of the property in the account. This may not be what your mother wanted.  

For example, let’s say your mother’s only asset was a sizable investment account. When she died, you would receive all of her assets – which in this case is the investment account.

Your siblings (if you have any) or your mother’s other intended beneficiaries would receive nothing from her. This is true even if she had a will, because jointly held assets pass to you (as the joint owner) outside of the terms of her will.  Think of it this way – a will doesn’t “work” on assets that are held jointly.

A better way to allow you to help out with your mother’s financial affairs if she became   incapacitated would be for her to sign a “durable power of attorney.”  The investment account would remain in your mother’s name, but you would be able to manage the investment account (subject to your duty to act in an honest and prudent manner, and to any restrictions written into the durable power of attorney).

There are other problems with holding assets jointly. One is risk – if there was a legal judgment against you because of, say, a car accident, the judgment creditor could take your mother’s investment account!  Also, there can be adverse tax implications to transferring assets into joint ownership.

When your mother added your name to the investment account, she made a gift to you and she may have to pay gift tax. Also, since you are now a co-owner, you will pay income tax on half of any income (capital gain upon a sale, dividends, interest, etc.) generated by the account.

Today’s column only touches on some of the problems when joint accounts are created for “the sake of convenience.” Please feel free to contact me if you would like to discuss other issues relating to joint accounts. I offer a one-hour consultation at no charge to you.

If any reader would like to ask me a legal question, post it on the Lake Zurich Patch website or send your question to me at lehmanlawoffices@aol.com

Thanks for your question, Alex.

My best regards,  

Lisa

Disclaimer:  Please be aware that this column provides only legal advice of a general nature and it is not intended as legal advice for any person or group of persons. You must always consult with an attorney with respect to your particular legal situation.