Several years ago, I wrote about probate planning involving the use of joint accounts. At the time, my father-in-law had just passed away and my mother-in-law, who survived him, was intent on paying the least amount of Estate Administration Tax (EAT).
Jointly held property with a spouse or with one or more children, with a right of survivorship may not form part of the deceased’s estate and may be effective to achieve a one-time EAT saving – the good. On the other hand, without a clear understanding of intention, the parent may have created a misunderstanding between siblings and a tax liability that is sooner than expected. Let us use an investment account as an example for purposes of this blog.
A parent who adds a child’s name to a bank account has made one of a current gift to the child, a bare trust arrangement to hold the property (with no change in beneficial ownership), or a promise that the account goes to the child on the death of the parent. All approaches would appear to avoid EAT – the good. A current gift will trigger current tax on any accrued gains – the bad. Without clear documentation on intention, there may be a misunderstanding among the siblings as to who inherits the account – also the bad.
The restructuring of her affairs post death of my father-in-law has served its purpose and allowed for the carveout in determining the EAT for the estate of my mother-in-law who recently passed away. Thankfully, she was clear in her intentions and there is not likely to be any misunderstanding among the beneficiaries of her estate.