How joint bank accounts can hurt an estate plan

It is often convenient for married couples in New York to maintain joint bank accounts while both spouses are living. However, when one spouse dies, joint accounts can cause some estate planning problems. These issues may not affect every estate, but they are important to be aware of.

A joint bank account can allow a surviving spouse to avoid probate and immediately take full ownership of assets that they co-owned with their deceased spouse. The problem is that when an estate passes the bulk of its assets to a joint account holder, the estate cannot take advantage of its estate tax credit. If the bank account is worth more than the deceased spouse’s estate tax credit, then the surviving spouse’s estate may have to pay taxes on the assets when they are later passed to heirs.

If a deceased spouse’s estate tax credit is not used, it will be lost. This is why a married couple with assets that are worth more than the estate tax credit limit may want to keep a portion of their assets in individual accounts. The balances in the accounts may then be passed on to beneficiaries tax-free as long as they are worth less than the estate tax credit limit.

Understanding how to avoid probate and transfer assets to beneficiaries without incurring federal or state estate taxes can be complicated. A couple that is interested in creating a tax-efficient estate plan may want to work with an estate planning attorney. An attorney may be able to help a couple to structure their estate plan to benefit both the surviving spouse and the heirs.