When it comes to estate planning, it’s natural to want to ensure that your children are provided for after you’re gone. Many people consider adding their children as joint owners or putting assets directly in their names as a simple way to transfer wealth. However, this approach can have unintended consequences that may impact both your financial security and your children’s future. In this post, we’ll explore the potential risks of putting assets in your children’s name under Wisconsin law and offer alternative strategies that better protect your legacy.

The Pitfalls of Putting Assets in Your Children’s Name

Loss of Control Over Assets

One of the primary concerns with adding your children to the ownership of your assets is the loss of control. In Wisconsin, as in other states, joint ownership means that your child gains full legal rights to the property. While you’re alive, your child can sell, transfer, or otherwise change the nature of the asset without your consent. Even if you trust your child implicitly, life circumstances can change, and the decision to transfer or sell assets might not align with your wishes.

Exposure to Creditors and Lawsuits

Wisconsin follows laws similar to those in other states regarding joint ownership. When you add your child to an asset, such as a bank account or real estate, that asset becomes vulnerable to your child’s creditors. If your child faces financial difficulties, such as bankruptcy or lawsuits, your property could be considered part of their estate and subject to legal action. Additionally, if your child goes through a divorce, the jointly owned assets can be split in the divorce proceedings, potentially leaving you with less than you intended.

Inheritance Tax Implications

Wisconsin does not impose an inheritance tax, which is beneficial for passing assets along to heirs. However, if you transfer assets to your child during your lifetime, you may still face gift tax considerations under federal law, especially if the value of the gift exceeds the annual exclusion limit. Additionally, Wisconsin does impose estate taxes on estates that exceed certain thresholds, so transferring assets to your child may impact your estate tax planning. Furthermore, if you transfer assets that have appreciated in value (like real estate), your child could face capital gains taxes if they sell the property, as they inherit your cost basis instead of a stepped-up basis, which could result in higher taxes.

Impact on Eligibility for Government Benefits

For families in Wisconsin with children who rely on government benefits such as Medicaid or Supplemental Security Income (SSI), putting assets in your child’s name can affect their eligibility. Wisconsin’s Medicaid program has asset limits for eligibility, and transferring assets to your child could push them above the threshold, making them ineligible for benefits. Similarly, SSI benefits also have income and asset limits, which could be jeopardized if you add your child to ownership of property or other assets. For families with children with special needs, this is a particularly important issue to consider.

Better Alternatives to Putting Assets in Your Children’s Name

Set Up a Trust

One of the most effective ways to ensure your children benefit from your assets without losing control is by establishing a trust. In Wisconsin, a revocable living trust is a popular option, as it allows you to maintain control over the assets during your lifetime while providing for an orderly transfer of assets to your children after you pass away. Trusts can also protect assets from creditors, reduce the impact of estate taxes, and ensure that your assets are distributed according to your specific wishes. Additionally, trusts can help avoid probate, making the transfer of assets more efficient and private.

Designate Beneficiaries

Instead of adding your child to an asset, consider designating them as a beneficiary on accounts such as life insurance policies, retirement plans (like IRAs or 401(k)s), or bank accounts. In Wisconsin, beneficiary designations are a simple way to ensure your child inherits assets without joint ownership. These assets can pass directly to your child outside of probate, making the transfer quicker and easier. However, it’s important to ensure your beneficiary designations are up-to-date and aligned with your overall estate plan.

Use Payable-on-Death (POD) or Transfer-on-Death (TOD) Accounts

For bank accounts and investment accounts in Wisconsin, you can set up payable-on-death (POD) or transfer-on-death (TOD) designations. These designations allow the asset to pass directly to your child upon your death, without needing to go through probate. This is a simple and effective way to transfer assets, and it helps avoid the complications of joint ownership while keeping control of the asset during your lifetime.

How to Protect Your Assets and Legacy

While it may seem simple to add your child’s name to assets as a way to pass on wealth, the potential consequences can be significant, especially under Wisconsin’s laws. Protecting your assets and ensuring they are distributed according to your wishes requires careful planning. Working with an experienced estate planning attorney in Wisconsin can help you navigate these complex issues and create a plan that reflects your goals while safeguarding your legacy.

At Turke & Steil LLP, we specialize in helping clients create estate plans that balance the need to provide for loved ones while protecting assets from unnecessary risks. If you’re considering how to best pass on your assets, contact us today at 608.237.1775 to learn more about how we can help you structure your estate plan for maximum benefit and security.