The Perils of Joint Accounts
Joint Tenancy With a Right of Survivorship (JTWROS) is a manner by which many of us hold bank and other financial accounts with others. It is a traditional method of account ownership that has many benefits. It commonly reflects the unity between spouses. It avoids probate when one party dies. It can be used for administrative convenience when one party ages and requests the help of another party, typically a child, in managing his or her financial affairs.
Unfortunately, many perils have arisen in using these accounts.
Peril #1
Estate Taxes: Mike and Julie have been married for 50 years. They have approximately $1,300,000 in assets. As New Jersey residents, they know that when they die, any assets over $675,000 are subject to an estate tax. In their case, this tax will be approximately $50,000. To avoid this tax, they each execute a Will with a Disclaimer Trust, which will shield $675,000 each, of $1,350,000. However, all of their accounts are owned jointly; thus, when the first spouse dies, everything goes to the survivor and the Disclaimer Trust is never funded.
Lesson: Jointly held accounts can lead to unnecessary taxes.
Peril #2
Nursing Home Costs: Jenny, who is single, has had her mother, Harriet, as a joint owner of her bank accounts for years, so that Harriet can take care of managing her money if Jenny ever becomes incapacitated. Unfortunately, Jenny’s father, George, has a stroke and needs to enter Happy Acres Nursing Home for permanent nursing care. After George and Harriet have spent down their funds to pay for part of George’s care and retain some assets for Harriet, Harriet applies for Medicaid on behalf of George. During the application process, Jenny’s account is discovered. The Medicaid office takes the position that those accounts need to be spent as the legal presumption is that they are the property of Harriet, and spouses must spend down their assets even on behalf of their husbands or wives.
Lesson: Your assets can be exposed to the liabilities of a joint account holder.
Peril #3
Theft of Inheritance: Frank has four children whom he loves very much and his Will treats them equally. Due to a decline in health, he puts the name of his daughter, Mary, on his financial accounts as a joint holder so she can manage his finances and pay his bills. He fully expects that any balance in these accounts will be divided equally among his children when he dies. However, when he dies, Mary tells her siblings that the money is all hers. The law supports her as it states that there is a presumption that jointly held accounts pass to the surviving owner.
Lesson: A joint account holder can thwart one’s estate planning goals.
Certainly, there is a time and place for the establishment of jointly held accounts. However, one must evaluate the disadvantages that can arise when setting them up. Prudent legal advice can anticipate and avoid the scenarios detailed above, as well as other perils.
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