Clients frequently tell me that they want to add their son or daughter as a joint owner on all of their accounts and assets “for convenience”. It would take much more space than we have here detail the plethora of reasons why people should not do that, and why, in reality, it is probably the most inconvenient thing that you can do. However, I will highlight some of the important ones.
The biggest reason people give is to avoid inheritance tax, and when the parent passes away, the money will transfer automatically to the child, and won’t be frozen. However, although both are true, if the child dies first, the parents will then to have to pay inheritance tax on their own money. In Pennsylvania, the inheritance tax to lineal descendants (children/grandchildren) and ascendants (parents) is 4.5%. Thus, the parent would have to pay 4.5% on half of all of the accounts the parent jointly owns with the child. It is a difficult call to make to a parent who recently lost a child to tell them that, although they are grieving, unfortunately, they will have pay tax on their own money. Their shock and dismay is palpable. “Why do I have to pay inheritance tax on my own money? I only added my daughter or son to that account because the bank teller told me to”, or the like.
Yes, when a person dies, if he or she has an asset in his or her own name, the accounts are frozen. However, it only takes a few days to open up an estate account, with very few hoops that to jump through. At most, it could take about a week or so to get the account open and start paying bills. A week of a little inconvenience certainly offsets all the other risks associated with joint accounts.
When a person ends up in long-term care and looks to qualify for Medicaid in order to be able to pay for the care, having joint-owned accounts is often far from convenient. For the parent, the caseworker is going to look to see who contributed the money into the account, and often the caseworker will try to count 100% against the child as well, because he or she had access to it. There too many concerns that with joint accounts with children; it simply doesn’t pay to have one. We offer weekly workshops at Bellomo and Associates, and a good portion of the workshop is directly around this concept of the reasons not to do it – from the perspectives of tax, long-term care, or estate planning. If this is something that you’re considering, please come attend a workshop and listen to the reasons not to do so. Sometimes, a little inconvenience can avoid an absolute catastrophe.
Take the next steps towards getting your estate planning matters into order. Join us for any one of our upcoming workshops. Just click here and select the topic and the day and time that works best for you. We'll see you soon!
Jeffrey Bellomo
