Joint account not always a good idea
By Amos Goodall
Recent court decisions have created problems for families who use joint accounts for estate planning purposes. Sometimes joint property may not go to the survivor.
Under Pennsylvania's Multiple Party Account law, an account owned by two or more people as joint owners is presumed to pass to the surviving owners upon the death of one person. Thus, if a father and son own an account as joint tenants with right of survivorship, if the father dies, the property goes to the son. Conversely, of course, if the son dies, the property goes to the father.
In either case, the recipient owes inheritance tax on the one-half portion that passed by operation of law. If there are more than two owners, the percentage of property being passed changes, but the tax principles remain the same.
People often will use joint ownershihp as a form of estate planning, although there are certain risks. One risk is obvious. If the child dies first, the parent ordinarily owes inheritance tax on what already was the parent's property. The second risk is that the child's interest can be attached by his or her creditors, so a parent might lose money because of a child's financial problems. Finally, of course, a child as a joint owner usually has the right to take all the parent's money out, usually.
Nevertheless, many folks use joint ownership as a form of estate planning. Property passing through joint ownership does not require probate, even though the financial interest is still taxed. There are other forms of account title used to avoid probate, including "in trust for" and "pay on death."
A recent decision by the Pennsylvania Superior Court casts doubt on this process. In the case, the husband and wife had prepared wills providing that, upon death of the first of them, the deceased's property would pass to the survivor, and on the second death, the property would pass ot the couple's four children equally.
After the husband's death, the wife did not change her will but placed the bulk of her property in join accounts with some, but not all, of the children. The holding of the case was that under the facts of the case, when a decedent has validly executed will and later places assets theoretically governed by the will in a joint account, the will controls if it is inconsistent with the property's title. So even though one child was named as a joint owner with her mother, all children would share in the account as provided in the will.
Although a will executed after the creation of a joint account does not change the joint owner's right to receive the property, the holding of this case is that under some circumstances, a joint account created after the execution of a will may not be valid. Although each case has different facts, the lesson here is that putting property in a joint account does not absolutely guarantee that the joing owner will receive the property.
As noted above, there are many reasons to title property jointly. Some of these reasons are better than others. The court seems to be making it difficult for folks to carry out their intentions by simply using a joint account ownership card. A much more certain solution is to discuss estate plans with a local lawyer.