Category: Inheritance Tax

Use Qualified Disclaimer to avoid Inheriting IRA

Use Qualified Disclaimer to Avoid Inheriting IRA

The rules governing inherited Individual Retirement Accounts (IRAs) have changed over the years. They have become even more complex since the passage of the original SECURE Act. The inheritor of an IRA may be required to empty the account and pay taxes on the resulting income within 10 years. In some situations, beneficiaries might choose to use a Qualified Disclaimer to avoid inheriting the IRA, according to a recent article, “How to Opt Out of Inheriting an IRA” from Think Advisor.

Paying taxes on the distributions could put a beneficiary into a higher tax bracket. In some situations, beneficiaries may want to execute a Qualified Disclaimer and avoid inheriting both the account and the tax consequences associated with the inheritance.

Individuals who use a Qualified Disclaimer are treated as if they never received the property at all. Of course, you don’t enjoy the benefits of the inheritance but don’t receive the tax bill.

Suppose the decedent’s estate is large enough to trigger the federal estate tax. In that case, generation-skipping transfer tax issues may come into play, depending on whether there are any contingent beneficiaries.

An experienced estate planning attorney is needed to ensure that the disclaimer satisfies all requirements and is treated as a Qualified Disclaimer. It must be in writing, and it must be irrevocable. It also needs to align with any state law requirements.

The person who wishes to disclaim the IRA must provide the IRA custodian or the plan administrator with written notice within nine months after the latter of two events: the original account owner’s death or the date the disclaiming party turns 21 years old. The disclaiming person must also execute the disclaimer before receiving the inherited IRA or any of the benefits associated with the property.

Once you use the qualified disclaimer to avoid inheriting the IRA, it must pass to the remaining beneficiaries without the disclaiming party’s involvement. The disclaiming party cannot directly decide who will receive their interests, such as directing the inherited IRA to go to their child. If the disclaiming party’s child is already named as a beneficiary, their interest will be received as intended by that child.

The person inheriting the account must execute the disclaimer before receiving any benefits from the account. Even electing to take distributions will prevent the disclaimer from being effective, even if the person has not received any funds.

In some cases, you may be able to disclaim a portion of the inherited IRA. However, these are specific cases requiring the experience of an estate planning attorney. If you would like to learn more about inherited IRAs, please visit our previous posts. 

Reference: Think Advisor (Feb. 8, 2024) “How to Opt Out of Inheriting an IRA”

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Integrating Retirement Accounts into your Estate Plan

Integrating Retirement Accounts into your Estate Plan

Retirement accounts, such as IRAs and 401(k)s, play a pivotal role in many estate plans. They are not just savings vehicles for retirement; they are also crucial assets that can be passed on to beneficiaries. An effective estate plan should integrate retirement accounts seamlessly, supporting your overall retirement and estate objectives.

When incorporating retirement accounts into an estate plan, it’s essential to understand the tax implications and the rules governing beneficiary designations. These factors can significantly impact how your retirement assets are distributed and taxed upon your death. Retirement accounts are subject to income tax and, in some cases, estate tax.

Retirement accounts, such as IRAs and 401(k)s, typically bypass the probate process, as they are transferred directly to the named beneficiaries. This direct transfer can simplify the estate settlement process and provide quicker access to funds for your beneficiaries. It’s important to understand that while retirement accounts may avoid probate, they are still part of your overall estate for tax purposes. Proper planning can help ensure that your retirement assets are distributed efficiently and tax-advantaged.

Roth IRAs are unique retirement accounts that offer tax-free growth and withdrawals. They can be a valuable tool in estate planning, particularly for those looking to leave tax-free assets to their beneficiaries. Unlike traditional IRAs, Roth IRAs do not require minimum distributions during the account owner’s lifetime, allowing the assets to grow tax-free for a longer period.

When including Roth IRAs in your estate plan, consider the potential tax benefits for your beneficiaries. Since distributions from Roth IRAs are generally tax-free, they can provide a significant financial advantage to your heirs. Tax-deferred retirement accounts, like traditional IRAs and 401(k)s, allow contributions to grow tax-free until withdrawal. This feature can lead to significant tax savings over time. However, it’s essential to consider the tax implications for your beneficiaries.

Beneficiary designations are a critical aspect of retirement planning. These designations determine who will inherit your retirement accounts upon your death. It’s crucial to regularly review and update your beneficiary designations to ensure that they align with your current estate plan and wishes. Failure to update beneficiary designations can lead to unintended consequences, such as an ex-spouse or a deceased individual being named as the beneficiary. Beneficiaries are generally subject to income tax on the distributions upon inheriting a tax-deferred retirement account. Planning for these tax implications is crucial in ensuring that your beneficiaries are not burdened with unexpected taxes.

Retirement assets are considered part of your estate and can impact your overall estate value and tax liability. Properly integrating retirement accounts into your estate plan can help achieve a balanced and tax-efficient distribution of your entire estate. This includes considering the impact on federal and state estate taxes and the income tax implications for your beneficiaries.

In conclusion, integrating retirement accounts into your estate plan is a complex but essential task. Understanding the nuances of how these accounts work in the context of estate and tax planning can ensure that your financial legacy is preserved and passed on according to your wishes. Consultation with financial and legal professionals is key to navigating this intricate aspect of estate planning effectively. If you would like to learn more about retirement accounts, please visit our previous posts. 

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529 Plans allow Grandparents to help with the Cost of College

529 Plans allow Grandparents to help with the Cost of College

529 plans allow grandparents to help with the cost of college for grandchildren. Helping grandchildren prepare for long-term success and easing the financial burden of college costs is a gift for two generations, as mentioned in a recent article from Kiplinger, titled “529 Plans: Give the Gift of Education (and Compounding).”

Giving cash directly to children or parents isn’t the best long-term strategy. Once the money is given, control is surrendered, and the gift may not be used as intended by the giver. Saving for college is one of the significant financial challenges parents face, especially considering the high inflation of college tuition costs. Between 2021 and 2022, U.S. college tuition rates increased by 12%.

This is where estate planning intersects with the new year. As the current historically high estate tax exemption ends at the end of 2025, managing the size of one’s estate becomes a higher priority. The structure of 529 college savings accounts can be used for tax efficiency and to control the eventual use of the gift while taking advantage of long-term compounding.

Current gift tax rules allow individuals to gift up to $18,000 per year per person. Therefore, a married couple could gift $36,000 to each child and grandchild without it counting against their lifetime exemption or requiring them to file a gift tax return. However, the 529 is even more advantageous, allowing a five-year front-loading of such gifts per recipient.

If your state has a plan, funding 529 plans offers deductions on state income taxes. If your state doesn’t have a 529 plan, you can open an account in another state but won’t receive the tax deduction.

There have always been concerns about overfunding a 529 account or having unused funds if the beneficiary decides not to attend college. Most plans allow account owners to change beneficiaries without any tax consequences as long as the new beneficiary is a member of the current beneficiary’s family. If the new beneficiary is younger than the prior one, it may be wise to change the asset allocation to reflect the new time horizon.

Another common question regards the impact gifting may have on the student’s application for federal aid. While 529 plans owned by parents are considered, 529 plans owned by grandparents are not on the FAFSA (Free Application for Federal Student Aid) form.

Changes to the original 529 structure have rendered these accounts even more valuable. The Tax Cuts and Jobs Act expanded the eligibility of 529 accounts for private and parochial K-12 schools. Then, the SECURE Act allowed 529 funds to be used to pay down up to $10,000 in student debt.

Starting in 2024, the SECURE 2.0 Act allows 529 funds to be rolled over into a Roth IRA at the annual contribution limit up to a lifetime maximum of $35,000 for a beneficiary. The account needs to be open for at least 15 years. Still, having an account grow in a tax-free environment and removing the distribution restrictions presents a valuable new investment tool.

Speak with your estate planning attorney about how 529 plans can allow grandparents to help family members with the cost of college and plan for estate taxes. If you would like to learn more about gifting and 529 plans, please visit our previous posts. 

Reference: Kiplinger (Dec. 20, 2023) “529 Plans: Give the Gift of Education (and Compounding)”

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Adjustment in Cost Basis is a Crucial Tax Consideration

Adjustment in Cost Basis is a Crucial Tax Consideration

The adjustment in cost basis is a crucial tax consideration. The adjustment in the cost basis is sometimes overlooked in estate planning, even though it can be a tax game-changer. Under this tax provision, an inherited asset’s cost basis is determined not by what the original owner paid but by the value of the asset when it is inherited after the original owner’s death.

Since most assets appreciate over time, as explained in the article “Maximizing Inheritance With A Step Up” from Montgomery County News, this adjustment is often referred to as a “step-up” basis. A step-up can create significant tax savings when assets are sold and is a valuable way for beneficiaries to maximize their inheritance.

In most cases, assets included in the decedent’s overall estate will receive an adjustment in basis. Stocks, land, and business interests are all eligible for a basis adjustment. Others, such as Income in Respect of the Decedent (IRD), IRAs, 401(k)s, and annuities, are not eligible.

Under current tax law, the cost basis is the asset’s value on the date of the original owner’s death. The asset may technically accrue little to no gain, depending on how long they hold it before selling it and other factors regarding its valuation. The heir could face little to no capital gains tax on the asset’s sale.

Of course, it’s not as simple as this, and your estate planning attorney should review assets to determine their eligibility for a step-up. Some assets may decrease in value over time, while assets owned jointly between spouses may have different rules for basis adjustments when one of the spouses passes. The rules are state-specific, so check with a local estate planning attorney.

To determine whether the step-up basis is helpful, clarify estate planning goals. Do you own a vacation home you want to leave to your children or investments you plan to leave to grandchildren? Does your estate plan include philanthropy? Reviewing your current estate plan through the lens of a step-up in basis could lead you to make some changes.

Let’s say you bought 20,000 shares of stock ten years ago for $20 a share, with the original cost-basis being $400,000. Now, the shares are worth $40 each, for a total of $800,000. You’d like your adult children to inherit the stock.

There are several options here. You could sell the shares, pay the taxes, and give your children cash. You could directly transfer the shares, and they’d receive the same basis in your stock at $20 per share. You could also name your children as beneficiaries of the shares.

As long as the shares are in a taxable account and included in your gross estate when you die, your heirs will get an adjustment in basis based on the fair market value on the day of your passing.

If the fair market value of the shares is $50 when you die, your heirs will receive a step up in basis to $50. The gain of $30 per share will pass to your children with no tax liability.

Tax planning is part of a comprehensive estate plan, and the adjustment in cost basis is a crucial tax consideration. An experienced estate planning attorney can help you and your family minimize tax liabilities. If you would like to learn more about tax planning, please visit our previous posts.

Reference: Montgomery County News (Dec. 20, 2023) “Maximizing Inheritance With A Step Up”

 

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Tax Strategies combined with Estate Planning can Safeguard Assets

Tax Strategies combined with Estate Planning can Safeguard Assets

Business owners who want long-term financial success must navigate an intricate web of taxes, estate planning and asset protection. Pre-and post-transactional tax strategies, combined with estate planning, can safeguard assets, optimize tax positions and help strategically pass wealth along to future generations or charitable organizations, as reported in a recent article from Forbes, “Strategic Tax and Estate Planning For Business Owners.”

Pre-transactional tax planning includes reviewing the business entity structure to align it with tax objectives. For example, converting to a Limited Liability Company (LLC) may be a better structure if it is currently a solo proprietorship.

Implementing qualified retirement plans, like 401(k)s and defined benefit plans, gives tax advantages for owners and is attractive to employees. Contributions are typically tax-deductible, offering immediate tax savings.

There are federal, state, and local tax credits and incentives to reduce tax liability, all requiring careful research to be sure they are legitimate tax planning strategies. Overly aggressive practices can lead to audits, penalties, and reputational damage.

After a transaction, shielding assets becomes even more critical. Establishing a limited liability entity, like a Family Limited Partnership (FLP), may be helpful to protect assets.

Remember to keep personal and business assets separate to avoid putting asset protection efforts at risk. Review and update asset protection strategies when there are changes in your personal or business life or new laws that may provide new opportunities.

Developing a succession plan is critical to ensure that the transition of a family business from one to the next. Be honest about family dynamics and individual capabilities. Start early and work with an experienced estate planning attorney to align the succession and tax plan with your overall estate plan.

Philanthropy positively impacts, establishes, or builds on an existing legacy and creates tax advantages. Donating appreciated assets, using charitable trusts, or creating a private foundation can all achieve personal goals while attaining tax benefits.

Estate taxes can erode the value of wealth when transferring it to the next generation. Gifting, trusts, or life insurance are all means of minimizing estate taxes and preserving wealth. Your estate planning attorney will know about estate tax exemption limits and changes coming soon. They will advise you about gifting assets during your lifetime, using annual gift exclusions, and determine if lifetime gifts should be used to generate estate tax benefits. Smart tax strategies combined with estate planning can safeguard assets for generations. If you would like to read more about tax and estate planning, please visit our previous posts. 

Reference: Forbes (Sep. 28, 2023) “Strategic Tax and Estate Planning For Business Owners”

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What You Should Know about Inherited IRAs

What You Should Know about Inherited IRAs

Here’s what you should know about inherited IRAs. Inheriting an Inherited IRA can be even more complicated than the already complex world of inherited Individual Retirement Accounts (IRAs). Understanding the rules and regulations about inheriting an inherited IRA is critical to avoid major tax pitfalls, according to a recent article from yahoo! finance, “What Happens When I inherit an Annuity?”

After the passage of the SECURE Act, the rules concerning inherited IRAs became quite restrictive. Working with an estate planning attorney knowledgeable about IRAs can be the difference between a healthy inheritance or an unexpected huge tax liability.

An inherited IRA is an IRA left to a beneficiary following the death of the original account owner. The beneficiary who inherits the IRA can pass it to a successor beneficiary upon death. This creates the “inheriting an inherited IRA” scenario.

If the line of succession is not set up correctly, there is the potential for inherited assets to go through probate for a judge to rule on the rightful owner.

The original beneficiary is the first person to inherit the IRA. Once they have inherited the account, they may name their successor beneficiary. There are rules for the original beneficiary and the successor beneficiary.

The SECURE Act changed the timeline for inherited IRAs. It eliminated the “stretch” IRA strategy, which allowed beneficiaries to take distributions over their lifetime, stretching out the tax-deferred growth of the IRA over decades. Now, most non-spouse beneficiaries must withdraw all assets from an inherited IRA within ten (10) years of the original account holder’s death. This change presents new implications with regard to taxes, especially if the beneficiary is in their peak earning years.

Inheriting an inherited IRA can involve complex tax rules and pitfalls. There are timelines for taking required withdrawals and zero flexibility for mistakes.

You’ll also need to be sure the inheritance is documented correctly to avoid potential probate.

The rules differ for spouses inheriting an IRA since they shared assets with their deceased spouse. The SECURE Act allows spouses to treat the IRA as their own, providing more flexibility in distributions and potential tax implications.

Understanding the concept of Year of Death Required Distributions is essential. Let’s say the original owner was over a certain age at death. In this situation, a Required Minimum Distribution (RMD) may need to be taken in the year of death, which could impact the heir’s taxes for that year.

Knowing potential tax breaks related to inherited IRAs will also help with financial management. Non-spouse beneficiaries can deduct the estate tax paid on IRA assets when calculating their income tax.

These are complex issues requiring the help of an experienced estate planning attorney. Ideally, the attorney will help you understand what you should know about inherited IRAs. This conversation should occur while creating or revising your estate plan. If you would like to learn more about IRAs, please visit our previous posts. 

Reference: yahoo! finance (Sep. 5, 2023) “What Happens When I inherit an Annuity?”

 

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Avoid a Tax Nightmare with your Trust

Avoid a Tax Nightmare with your Trust

The other message is to be certain that the person serving as a trustee has the knowledge to administer the trust properly or the wisdom to retain an experienced estate planning attorney who will know how to administer a trust. Avoid a tax nightmare with your trust with the correct forms. Not every CPA has detailed knowledge about trust taxation, reports the recent article, Trust’s Incorrect Tax Form Forfeited large Tax Refund Claim: A Lesson For Trustees,” from Forbes.

For income tax purposes, there are several types of trusts. “Grantor trusts” are those whose income is taxed to the person, the settlor, who created the trust. The trust at issue was a grantor trust. However, when the taxpayer who created the trust died, the trust became a non-grantor trust. These are also called “complex” trusts. The income is not reported by the person creating the trust. Complex trusts usually pay their own income taxes. The beneficiaries receiving distributions then report the income for tax purposes included in the income received from the trust. This is referred to as the trust’s Distributable Net Income or “DNI.”

In this case, the trust is the remainder trust after the termination of a Qualified Personal Residence Trust or “QPRT.” This is a trust used to transfer a valuable house from the taxpayer’s estate to descendants or to a trust for them at a discount from the trust’s current value.

The trust had income to report for income tax purposes, which will be done on Form 1041, U.S. Income Tax Return for Estates and Trusts. The trust felt it was entitled to a refund of some of the taxes it paid, so it filed for a refund. Refund claims are supposed to be filed by amending the trust income tax return, but the trust filed Form 843, a form to claim a refund. The wrong form led the Court to determine that the trust failed to take appropriate action, and the refund was lost. The trust’s filing did put the IRS on notice that the claim was the wrong action.

The IRS said the taxpayer’s filing of Form 843 was insufficient as a formal claim because an amended Form 1041 is the proper form. The Court found that the IRS is authorized to demand information in a particular form and to insist that the form is observed. The instructions on Form 853 advise that the form is for a refund of taxes other than income tax, while the instructions on Form 1041 indicate that it must be used to claim a refund.

What happened in this case? Someone managing the trust didn’t know enough about trust taxation. The family may not have had regular meetings with their estate and trust attorney who created the trust. The deceased taxpayer in this case was a judge, and the trustee was the son of the judge. The taxpayer died in 2015, and the house was sold for $1.8 million the next year. The IRS demanded $930,127 in taxes, penalties, and interest from the Trust. The Trust paid that amount assessed on September 24, 2021. The court opinion was handed down on August 7, 2023. The amount of costs in accounting and legal fees must have been enormous.

This is an excellent example of why families need to have regular, ongoing meetings with their estate planning attorneys and tax advisors to be sure everyone is on the same page. Annual reviews and an estate planning attorney focusing on trust taxation could avoid a tax nightmare with your trust. It would have saved this family money, time, and the stress of an unresolved IRS issue. If you would like to learn more about taxation in estate planning, please visit our previous posts. 

Reference: Forbes (Aug. 19, 2023) Trust’s Incorrect Tax Form Forfeited large Tax Refund Claim: A Lesson For Trustees”

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Tax Scams Involving Charitable Remainder Annuity Trusts

Tax Scams Involving Charitable Remainder Annuity Trusts

If you are a wealthy family looking into estate planning, beware of tax scams involving Charitable Remainder Annuity Trusts. The IRS has issued a warning about promoters aiming specifically at wealthy taxpayers, advises a recent article, “IRS Warns Of Tax Scams That Target Wealthy,” from Financial Advisor. Charitable Remainder Annuity Trusts (CRATs) are irrevocable trusts that allow individuals to donate assets to charity and draw annual income for life or for a fixed period. A CRAT pays a dollar amount each year, and the IRS examines these trusts to ensure they correctly report trust income and distributions to beneficiaries. Of course, tax documents must also be filed properly.

Some sophisticated scammers boast of the benefits of using CRATs to eliminate ordinary income or capital gain on the sale of the property. However, property with a fair market value over its basis is transferred to the CRAT, the IRS explains, and taxpayers may wrongly claim the transfer of the property to the CRAT, resulting in an increase in basis to fair market value, as if the property had been sold to the trust.

The CRAT then sells the property but needs to recognize the gain due to the claimed step-up in basis.  The CRAT then purchases a single premium immediate annuity with the proceeds from the property sale. This is a misapplication of tax rules. The taxpayer or beneficiary may not treat the remaining portion as an excluding portion representing a return of investment for which no tax is due.

In another scam, abusive monetized installment sales, thieves find taxpayers seeking to defer the recognition of gain at the sale of appreciated property. They facilitate a purported monetized installment sale for the taxpayer for a fee. These sales occur when an intermediary purchase appreciated property from a seller in exchange for an installment note, which typically provides interest payments only, with the principal paid at the end of the term.

The seller gets the larger share of the proceeds but improperly delays recognition of gain on the appreciated property until the final payment on the installment note, often years later.

Anyone who pressures an investor to invest quickly, guarantees high returns or tax-free income, or says they can eliminate taxes using installment sales, trusts, or other means, should be dismissed immediately. Beware of tax scams involving Charitable Remainder Annuity Trusts. Your estate planning attorney is well-versed in how CRATs, LLCs, S Corps, trusts, or charitable donations are used and will steer you and your assets into legal, proper investment strategies. If you would like to learn more about charitable giving, please visit our previous posts.

Reference: Financial Advisor (April 24, 203) “IRS Warns Of Tax Scams That Target Wealthy”

 

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How an Annuity Beneficiary Works

How an Annuity Beneficiary Works

It is important to understand how an annuity beneficiary works. If the beneficiary of an annuity is your spouse, they can take over ownership of the annuity and receive payments under the annuity schedule. The annuity would be tax-deferred, and your spouse would only owe taxes on the distributions when they take them, says Forbes’ recent article, “What Is An Annuity Beneficiary?

However, the rules differ if your beneficiary is someone other than your spouse. A non-spouse has three options when inheriting an annuity:

  • A lump sum payment. The beneficiary gets the annuity’s remaining value as one upfront payment and must pay income taxes immediately on the lump sum.
  • Nonqualified stretch, where the annuity payouts—and the required income taxes—are stretched throughout the beneficiary’s lifetime; or
  • Beneficiaries can withdraw smaller amounts from the annuity during a five-year period after the annuity holder’s death or withdraw the entire amount in the fifth year.

Only the annuity owner can name a beneficiary. However, they can change beneficiaries at any time, provided the annuity contract doesn’t require you to name an irrevocable beneficiary. You can also choose multiple beneficiaries, designating a percentage of the annuity for each person. Annuity contracts also frequently let you designate a contingent beneficiary—a person who will get the annuity payments if the primary beneficiary dies before the annuity owner does.

The choice of beneficiary also significantly impacts how taxes are handled, so taking the time to document your wishes can save your loved ones from problems in the future.

While you aren’t required to name a beneficiary when you purchase an annuity, it’s highly recommended.

Suppose you don’t have a designated beneficiary in the annuity contract. In that case, the annuity must go through probate—the legal process for recognizing a will and distributing the assets within an estate.

These proceedings can be expensive and time-consuming. It could be several months before everything is resolved and the heirs receive their inheritance. An estate planning attorney will help you understand how an annuity beneficiary works and how to ensure your planning addresses your needs. If you would like to learn more about the role of the beneficiary, please visit our previous posts. 

Reference: Forbes (Jan. 19, 2023) “What Is An Annuity Beneficiary?”

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Adding Children to Joint Account can have Unintended Consequences

Adding Children to Joint Account can have Unintended Consequences

A common request from seniors is to add their children to their bank accounts, in case something unexpected should occur. Their goal is admirable—to give their children access to funds in case of an emergency, says a recent article from Kiplinger, “Joint Account With Rights of Survivorship and Alternatives Explained.” However, adding children to a joint bank account, investment account or even a safe deposit box, can have unintended consequences.

Most couple’s bank accounts are set up by default as “Joint With Rights of Survivorship” or JWROS, automatically. Assets transfer to the surviving owner upon the death of the first spouse. This can lead to several problems. If the intent was for remaining assets not spent during a crisis to be distributed via the terms of a will, this will not happen. The assets will transfer to the surviving owner, regardless of directions in the will.

Adding anyone other than a spouse could also trigger a federal gift tax issue. For example, in 2023, anyone can gift up to $17,000 per year tax-free to anyone they want. However, if the gift exceeds $17,000 and the beneficiary is not a spouse, the recipient may need to file a gift tax return.

If a parent adds a child to a savings account and the child predeceases the parent, a portion of the account value could be includable in the child’s estate for state inheritance/estate tax purposes. The assets would transfer back to the parents, and depending upon the deceased’s state of residence, the estate could be levied on as much as 50% or more of the account value.

There are alternatives if the goal of adding a joint owner to an account is to give them access to assets upon death. For example, most financial institutions allow accounts to be structured as “Transfer on Death” or TOD. This adds beneficiaries to the account with several benefits.

Nothing happens with a TOD if the beneficiary dies before the account owner. The potential for state inheritance tax on any portion of the account value is avoided.

When the account owner dies, the beneficiary needs only to supply a death certificate to gain access to the account. Because assets transfer to a named beneficiary, the account is not part of the probate estate, since named beneficiaries always supersede a will.

Setting up an account as a TOD doesn’t give any access to the beneficiary until the death of the owner. This avoids the transfer of assets being considered a gift, eliminating the potential federal gift tax issue.

Planning for incapacity includes more than TOD accounts. All adults should have a Financial Power of Attorney, which allows one or more individuals to perform financial transactions on their behalf in case of incapacity. This is a better alternative than retitling accounts.

Retirement accounts cannot have any joint ownership. This includes IRAs, 401(k)s, annuities, and similar accounts.

Power of attorney documents should be prepared to suit each individual situation. In some cases, parents want adult children to be able to make real estate decisions and access financial accounts. Others only want children to manage money and not get involved in the sale of their home while they are incapacitated. A custom-designed Power of Attorney allows as much or as little control as desired.

Adding children to a joint account can have unintended consequences. Your estate planning attorney can help you plan for incapacity and for passing assets upon your passing. Ideally, it will be a long time before anything unexpected occurs. However, it’s best to plan proactively. If you would like to learn more about planning for incapacity, please visit our previous posts. 

Reference: Kiplinger (March 30, 2023) “Joint Account With Rights of Survivorship and Alternatives Explained”

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Information in our blogs is very general in nature and should not be acted upon without first consulting with an attorney. Please feel free to contact Texas Trust Law to schedule a complimentary consultation.
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