Earlier this year, my father-in- law left us suddenly.  While my in-laws were careful about planning for this day there was still some Estate Administration Tax (EAT) to be paid on the transfer of assets between spouses.  Armed with that experience, my mother-in-law is determined pay the least amount of EAT and asked about the use of joint accounts.

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’s 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, however, 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.

My advice to my mother-in-law – be careful to add a note about intentions.  Thanks for reading.