Tag: Joint Accounts

In Part 1 of the blog series on joint accounts we examined tax issues that can result from joint accounts. In this article we discuss conflicts between the beneficiaries on a joint account and the estate plan under a will or trust. Although this article primarily references joint accounts, these problems apply equally to Payable on Death and Transfer on Death (TOD) designations. Conflicts between a Will and a joint account (or POD or TOD designation) create issues that are less technical than the tax issues we covered in Part I, but can actually be far more costly. In many situations, the emotions associated with an imbalanced estate result in bitter litigation that generates expensive attorney’s fees and depletes the estate.

Because joint account titles are often made without the benefit of estate planning counsel, with little analysis of the consequences, they can have profound effects on an estate. Joint account designations supersede a will or a trust. If I designate my daughter as the joint tenant of one account, but name my wife as sole beneficiary of my estate under my Will, my daughter will take the joint account. This may not make my wife very happy, particularly if the joint account represents a substantial portion of my assets. In some cases joint accounts can result in a grossly inconsistent or imbalanced estate and lawsuits.

Suppose for example, that we have a widower named “Jim.” Jim has no children and wants to leave his estate to various family and friends. Jim rents his apartment but has various financial accounts at the bank. In Jim’s Will, he divides his financial accounts as follows:

10%	To a friend;
20%	To a nephew;
35%	To his sister; and,
35%	To his brother.

Jim names his brother executor and provides in his Will that all taxes are to be paid from the residue of his estate.

Read More about A Joint Account Seemed Like a Good Idea at the Time – Part II

In this blog and in an upcoming blog, I am going to cover some of the tax and allocation problems created by joint accounts. The focus of this blog is on some tax related matters involving joint accounts.

Many clients believe that joint accounts make great estate planning tools. In reality, joint accounts often complicate the estate administration, cause delay, and result in unnecessary expenses. Joint accounts limit the estate’s ability to address estate taxes, and may create obstacles for effective estate tax planning. Problems result from the limited survivorship rights associated with joint accounts. If one of the joint owners dies the account passes to the surviving joint tenant(s) unless special action is taken. Furthermore, the surviving joint tenant takes the entire account, leaving limited options for passing the account to other beneficiaries. These issues are particularly acute for joint accounts between spouses. The amount of assets held in joint accounts should be limited, particularly for married couples who can hold their assets in separate accounts.

Joint accounts often encourage the surviving spouse to take the entire account, so it cannot be used to fund a credit shelter or other estate tax saving distribution. While transferring the entire account to a surviving spouse may sound like a good idea, it complicates effective use of the deceased spouse’s estate tax credits. In New Jersey the estate tax credit is only $675,000, and if the deceased spouse’s credit is not utilized, then it is lost.

Read More about A Joint Account Seemed Like a Good Idea at the Time – Part I