Joint ownership on assets is not the solution for all challenges that arise in estate planning and financial management.  Oftentimes, joint ownership can compound the complexity of estate planning and benefits qualification because with joint ownership comes additional obligations and risks. Below are a few points to consider that make joint ownership a beneficial and risky endeavor.

Control and Creditor Liability:

Most commonly referred to as “joint accounts” for titling purposes, joint ownership is the immediate conveyance or transfer of ownership in an asset to another party. By transferring the asset from one party to another to be held jointly, the other party has immediate control, access, use and possession of that asset that he or she previously did not own. After the asset is transferred to the other person with joint ownership, the original owner is accountable to the new joint owner for all actions moving forward. In part this can be beneficial for parties seeking to manage and oversee a family member’s assets should that family member be suffering from cognitive limitations. However the restricted control can also require both parties to agree to the use of the asset, which we all know to be a challenge among some families.

With the immediate transfer of ownership, the new joint owner’s access to the asset can pose a significant risk to the original owner. If the joint owner can access and control the asset, so too can a creditor. While a creditor is limited to the ownership of the new joint owner, this can pose a risk to defending the asset from attacks by a creditor.

Pennsylvania Inheritance Taxes and Probate:

Joint ownership often includes “rights of survivorship” which gives the new owner the right to receive the part of the asset owned by the original owner upon the original owners passing. Financial institutions encourage account holders to take advantage of this feature to avoid probate and Pennsylvania Inheritance Taxes. In part, the use of joint ownership with rights of survivorship can be an effective tool to reduce Pennsylvania Inheritance Taxes and avoid the probate process. However, it is important to understand that joint ownership with rights of survivorship supersede the contents of a Last Will and Testament. The joint ownership with rights of survivorship overrule a conflicting Last Will and Testament. Not knowing this discrepancy can cause unequal or unintended distributions among beneficiaries in an estate, which lead to potential family feuds. If titling the assets as joint ownership with the rights of survivorship reflects the original owner’s final wishes, then the new joint owner will inherit the balance of the asset owned by the original owner upon passing and only have to pay Pennsylvania Inheritance Taxes on the portion the new joint owner receives upon the original owners passing. The tax rate is based on the relation of the joint owner to the original owner.

For example: Mom had a checking account with $20,000.00. She transferred the title on the account to her Son as joint owners with rights of survivorship. Mom passed away a year after the transfer. As a lineal descendant, son must pay 4.5% of the half that he inherited from his mother upon her passing. He would owe the Pennsylvania Department of Revenue $450.00.

Saving taxes with joint ownership with the rights of survivorship is helpful, but the true benefit comes from probate avoidance. Upon the passing of the original owner, by operation of law, the joint owner receives the balance of the account without the need to go to the Court to open the estate or pay creditors. For families with high credit card debt or unpaid medical bills, this can bring solace to a grieving family upon a loved one’s passing.

Long Term Care Benefits Qualification:

In the process of caring for and assisting a loved one, family members are often added as joint owners with rights of survivorship to bank accounts and investment accounts. Instead of relying on a Financial Power of Attorney, the family uses the new rights with the joint ownership to write checks from the account. This will create a penalty for Medicaid in a long term care facility, which as outlined in other articles creates a larger financial risk for the spouse and children of the applicant.

When joint owners on an account use the funds from the joint account for any expenses, the joint owner is presumed to be using those funds for the joint owner’s personal benefit and not their loved one’s benefit. For Medicaid and long term care purposes, this presumption can create a gift, which in turn, causes a penalty period. If Medicaid long term care benefits are sought, the joint owner on the account must then attempt to retroactively prove that the funds were used for the original owner’s personal benefit and not the benefit of the joint owner. Since most people don’t retain copies of receipts for these transactions, the presumption cannot be rebutted and the family must pay out of pocket for the expenses caused by the penalty.

Balancing the use of joint ownership with rights of survivorship with proper estate planning in a Financial Power of Attorney requires a thorough analysis of your goals and liabilities, and those of the potential joint owner.   Estates and estate planning is usually quite complex and confusing.  You can simplify by calling the experienced, proven, and trusted attorneys at Mooney Law.  Call to schedule an appointment with an attorney at Mooney Law at 717-200-HELP or at 833-MOONEYLAW.