We often see clients who were advised by a bank teller or other professional to simply add their children as the joint owners on their bank accounts, usually for convenience. Unfortunately, this simple act often causes unintended tax or other consequences later.

Before Sally came to see us, the teller at her local bank told Sally that she should put her daughter, Teresa, on her accounts as a joint owner, “for convenience”, which Sally then did. Unfortunately, Teresa suddenly and unexpectedly passed away a few months later. Sally came to see me because she was told that she would have to pay Pennsylvania inheritance tax on half of the value of all of the accounts on which she had added her daughter.

She was frustrated and very irritated that she had to pay tax on money that she owned. I explained that by adding her daughter to the account, her daughter became a joint owner, and therefore it was correct that she was going to have to pay 4.5% inheritance tax on one-half of her own money (the tax could be much higher if the joint owner is not a lineal descendant).  

In another situation several years ago, a client came to my office on behalf of her mother, who was currently in a nursing home. The mother had added another of her children as a joint owner on her account, and both the mother and daughter were currently in nursing homes. When the mother applied to qualify for Medicaid, the Medicaid caseworker assigned to her application counted 100% of the assets against her because she contributed all the money to the account, even though it was several years ago.

However, they were also applying for Medicaid for the daughter, and the daughter’s caseworker was counting 100% of those same assets against the daughter, who was the joint owner, because she had access to all of it. My client could not understand how something that occurred several years ago could still be counted 100% against the mother, and at the same time also be counted 100% against the daughter, and was in a battle with the daughter’s caseworker that it shouldn’t count 100% against her as well. While I certainly understand her frustration, and logically it probably doesn’t make sense, I explained that is the law, which unfortunately is not always logical or reasonable.  

Be wary of any financial arrangements that sound convenient; the rules relating to tax law are often very different from the laws that relate to qualifying somebody for Medicaid. Even though it may only count 50% for certain tax purposes, it could very well count 100% in another context. Before you try to do something for convenience, talk to a professional who understands both Medicaid and tax issues to make sure that it’s not going to turn out to be “inconvenient”.

If you have questions about estate planning for you and your family we offer a FREE educational workshop.  Just click here to RSVP for the one that works best for you and we'll see you then!

Jeffrey Bellomo, Esq.