The problem with adding a child or friend to your asset(s) as a co-owner

One of the most common “simple solutions” I see people considering in estate planning is adding a child or friend as a co-owner on a house, bank account, or other asset. I can’t say you should never do it: sometimes it works out fine. But the problem is that, when it doesn’t work out, it creates a mess that often costs far more than the alternatives.

First of all, adding someone as a co-owner can expose your assets to that person’s financial obligations and problems. Divorce, lawsuits, creditor claims, bankruptcy, or tax issues affecting that person may suddenly affect your property, too.

Adding another person as a co-owner can also unintentionally disinherit other family members or friends, create conflict between people, or trigger disputes about whether that person was supposed to “share” the asset later with others.

Further, if you ever have a disagreement with the co-owner, you cannot simply remove them from the title or account.

Finally, Colorado recognizes common law marriage among people of all genders. Adding another person as a co-owner may unintentionally suggest to a trier of fact that you intended to marry this person, when that may never have been the intent.

There are also practical issues, even if none of the above issues apply. A co-owner may need to sign off on refinancing, selling property, or managing the asset. And depending on the situation, you may create unnecessary tax consequences or lose opportunities for a step-up in basis after death.

Estate planning should be intentional. “Easy” shortcuts often lead to difficult or unintended outcomes. Before adding anyone as a co-owner, it is worth discussing the long-term consequences and whether there is a better tool for the job.