Many clients come into this office and ask whether they should title all of their bank accounts jointly with their children, as joint tenants with right of survivorship, in order to avoid probate and quickly pass ownership of assets to their children upon their passing.
Joint tenancies with right of survivorship are established when two or more people title assets, such as bank accounts or real property, in their joint name, as joint tenants with right of survivorship. With this form of shared ownership, upon the passing of a co-owner, the deceased co-owner’s interest in the property ends and title passes directly to the surviving co-owner(s). This process would continue until there is a single owner of the account. While this method of passing ownership in assets avoids probate, it can present a new set of issues which should be considered prior to taking any action.
Tax Consequences: The moment you add another person on an account as a joint tenant with right of survivorship, you are effectively making a gift of one-half of the value of the account. If the gift is more than $14,000 (meaning the account contains more than $28,000), then you effectively just made a taxable gift to the newly added joint owner, which gift should be reported to the IRS.
Liability Issues: An account titled with another individual as joint tenants with right of survivorship is now no longer your solely owned asset. One-half of this account is now vulnerable to judgments and creditors of the joint owner.
Unintended Estate Planning Consequences: When a parent adds one or more, but not all, of their children to an account as a joint tenant with right of survivorship, upon the parent’s passing, some children may end up inheriting more than others. While the parent may intend for all of the children to receive an equal share of the assets upon their passing, the surviving co-owners of the account have no obligation to share with their siblings. And, if the surviving co-owner of the account does choose to share with their siblings not named on the account, it would be considered a gift.
In order to avoid the outcomes discussed above and create the most effective estate plan for your situation, it is important to consult with an estate planning attorney prior to retitling your assets.
For additional information please contact BaskinFleece at 727.572.4545.