Jointly Held Assets and Estate Administration
One recurring theme in my practice is that jointly held assets present a host of potential problems in the administration of a decedent’s estate. Generally, what I’m thinking of is bank accounts and other financial holdings, though other property can pass to a joint owner (real estate, for instance, often passes to a spouse by the entireties or to a joint tenant with right of survivorship).
Whenever an asset passes by virtue of being jointly held, it passes outside the decedent’s will, and the testamentary intent of the decedent may be inadvertently defeated. It’s regrettably common for someone to make will and then effectively make the will meaningless because, with no intention to do so, the person has removed all of the assets from their estate by naming joint owners. I have seen several cases where a person made a will leaving their estate to be divided equally among their children, and at the time the will was made all of their assets were in bank accounts and brokerage accounts jointly owned with just one of their children.
Joint accounts can create tax problems as well. The general statutory framework provides that a jointly owned becomes the asset of the survivor upon the death of the decedent. The New Jersey Multiple-Party Deposit Account Act provides that funds in a joint account belong to the surviving party absent clear and convincing evidence of a different intention. The New Jersey estate and inheritance tax rules make the opposite presumption. All funds held in a jointly-title account are presumed to belong entirely to the decedent and are included in the taxable estate absent a showing of other intent. If the joint tenant is someone other than the spouse, child, grandchild, or parent of the decedent, an inheritance tax is triggered, and the estate must file a return and, where appropriate, seek to establish that no inheritance tax should be applied.
It is common for people to hold a joint bank account with a child or trusted friend as a “convenience account,” to allow the co-owner to assist in the management of the decedent’s affairs. Many people also use joint-account designation as a form of do-it-yourself estate planning, with joint bank accounts intended to pass as gifts to the surviving owner.
There are manifest tax risks with these arrangements. For one, if the order of death is not as the maker of the account anticipated, they may find an estate tax imposed on their own money while they are living. For example, if a person adds her niece to an account so that the niece may assist in paying bills and the like, and then the niece predeceases, an inheritance tax will be triggered on the whole account, and the niece’s estate will be forced to file an inheritance tax return and fight to exempt the account from tax.
Another area of concern in administration is that joint accounts open the door for a certain category of probate litigation. Even if the account was in fact intended to pass to the survivor, another heir of the decedent may challenge designation as the result of undue influence. The close relationship that prompted the decedent to make the joint-owner designation may be the basis for such a challenge.