My Accounts are Joint Anyway

Some people believe they can avoid the estate administration tax by placing their assets in joint accounts.

Estate Administration Tax

Let me say once and for all, estate administration tax (E.A.T., formerly known as probate fees) are high, but they are not the biggest expense of an estate. If you need to pay income tax or real estate commissions, they will be far more costly than E.A.T. However, when E.A.T. was raised to its present level, it causes an enormous , and justifiable commotion. Suddenly it was the “dragon” to be avoided at all costs. One popular method to avoid the cursed tax was joint ownership with rights of survivorship.

Joint Ownership

Spousal: Like many things in life, whether or not joint tenancy is the right answer for you, depends on the questions being asked and common sense. Unquestionably,  for most couples, joint ownership is ideal as long as both spouses wish to leave their accumulated wealth to the survivor. The situation changes though if this is a second marriage and there are children from at least one previous marriage. Is joint ownership still appropriate?

Parent/Child: Another popular form of joint ownership is joint ownership between a widowed parent and a child(ren) for assets such as the family home. In many cases, the sole motivator for such a move is the avoidance of E.A.T.

Here are some of the possible consequences:

1. The parent no longer has complete control of the asset and needs the child’s co-operation to deal with the property.
2. Although the principal residence is tax exempt, if the child doesn’t live there with the parent, his/her interest in the property may be considered an investment interest and be subject to capital gains tax when the property is sold.
3. If the child is married when the joint ownership is established, but separates afterward, there may be unwanted family law repercussions when the child and his/her “ex” start equalizing their property.
4. It may not have been the parent’s intention that the child, if he or she is the survivor, inherit the property as a gift. The Will (and private expectations) may indicate that the intention was for the child to share the property’s value with someone else.

In many instances joint ownership is the best answer. However, before you can know that, you should get the pro’s and the cons explained to you in your particular case. The better informed you are beforehand, the better.