How good is an estate planiing technique that saves 2.25% in taxes but might cuase you to be taxed on your own asset or to lose it?

That is just what can happen when you use the "joint ownership" of accounts and real estate.

There is a temptation to use joint bank accounts and the joint ownership of real estate and stock accounts to avoid probate and to lower Pennsylvania Inheritance Taxes.  However, there are substantial downside risks that should be considered before placing any type of account or real property into a jointly owneed structure.

First, let's consider the pros:

When you place an account in joint names with another person, it becomes a non-probate asset and transfers automatically on death to the joint account holder.  In short, it is simple but may not be best.

There may be a tax savings for Pennsylvania Inheritance Taxes.  If you have two joint account holders, then only half of the asset is taxed by Pennsylvania.  This rule doesn't apply to the Federal Estate Tax which taxes the entire asset.  But beware - you may pay tax on your own money if the joint account holder dies before you.

The Cons:

You mkight be taxed on your own asset during your lifetime.  That's right. If a joint account holder - let's say a son or daughter dies before you, you pay tax Inheritance Tax on your own asset.

Your heirs might be treated unequally.  If you have multiple children and make one the joint account holder of each account and then you become incapacitated, one account might be spent and the other not at all.  One child might get your entire estate.  Think that doesn't happen?  Think again.  It happens frequently.

A joint account holder might withdraw the money.  This doesn't happen often, but many account tiles allow it and it has been known to occur. 

A joint account holder might get sued or divorced and claims might be made on your asset.  Remember, it isn't just your asset.  When a child is added to an asset, there creditors might claim an interest in that asset.  This can be particularly important if you have placed your house in joint names.  This also poses very complicated and often negative income tax consequences discussed in another blog entry.

This type of ownership is mistakenly believed to protect assets from nursinghome and mediciad spend down.  However, joint accounts are a fully available asset.

In short, joint ownership may have a place in estste and trust planning and for asset protection purposes.  However, be sure that such ownership is disclosed to the team working on your estate and asset protection and be sure to discuss the pros and cons in your case.

David M. Frees, III
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Attorney, Speaker and Author
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