Your Joint Accounts and Estate Tax Planning

Joint accounts are a popular estate planning option because they allow the quick transfer of assets after the death of one or more of the joint owners. The surviving joint owners of an account take complete ownership of the account after proving the death of the deceased joint owner. When a joint owner dies, there are often estate and inheritance tax consequences related to inheriting a joint account.

Depending on the number of joint owners and the relationship between the joint owners, a portion or all of the fair market value of the joint account may be included in the decedent’s estate. After determining how the account will be divided among the owner’s estates, it is important to determine how taxes will be determined.

If the deceased joint owner died intestate (without a will) and the deceased owner’s estate is subject to state or federal estate or inheritance taxes, whether the surviving joint owners are responsible for part of the estate or inheritance tax bill will depend on state law. If the property owned jointly was real estate, the law of the state within which the property is located will control. If the property owned jointly was not real estate, the law of the state where the deceased joint account owner died will control.

If the deceased joint owner died testate (with a will) and the deceased owner’s estate is subject to state or federal estate or inheritance taxes, the apportionment of the tax will be dependent on the provisions contained in the owner’s Last Will and Testament or revocable living trust.

Importantly, depending on the state, the joint owner of an account may not be required to pay any of the deceased joint owner’s final bills, unless the joint owner cosigned or otherwise personally guaranteed one of the decedent’s debts. This is because joint accounts pass outside of the decedent’s probate and, therefore, the reach of the decedent’s creditors. If you are the joint owner of an account and are unsure of whether you personally guaranteed the other owner’s debt, speak with an estate planning attorney immediately.