What Happens to a Joint Account When my Spouse Passes Away? (Part Two)
You May Face Potential Estate Tax Consequences
At least some portion of your joint account is going to contribute to the decedent’s taxable estate value, even if the joint account itself won’t be subject to probate. Probate estates, and taxable estates are completely different, and we do want to make that part clear.
A probate asset is one which requires a legal mechanism to pass it on to a living beneficiary after your death, whereas a joint account with rights of survivorship will not. A taxable asset may include just about any item or property a decedent had any ownership interest in at the time of his or her death.
You will always want to confer with the executor of the estate if a decedent left behind a probate estate. As a practical matter, only very large estates will be subject to any kind of estate tax at the federal level—this has been established as a value of $11.58 million or more as of 2020, and only the value over this amount is subject to this tax. It’s very unlikely that you should need to worry about this unless you are very well off.
There are twelve states in addition to the District of Columbia that have established their own estate taxes as of 2019, these are separate from any federal taxes due. The value thresholds in each state do vary considerably from the one established at the federal level. We advise that you consult with a local estate planning lawyer to determine whether your state is one of these – so you will know for sure whether you have any tax to worry about, as far as the state level goes.
You May Also Face Inheritance Tax Consequences
An estate tax is calculated from the percentage payable on the overall value of a decedent’s estate and will normally be paid directly from the estate. Inheritance taxes are only levied against specific gifts or bequests and are payable by the person who receives the asset, they are not paid by the estate. Some decedents may elect to leave a clear set of instructions that their estates should plan to pay however, which would be done primarily to take a tax burden off the beneficiary.
The good news here is that there are no inheritance taxes at the federal level, and we only have a few states in our country which impose a separate inheritance tax. The laws of the state where the account owner died would dictate whether you will be required to pay any inheritance taxes on that account.
Inheritance tax rates are also typically dependent on how closely you were related to the person who passed away. Spouses are typically going to inherit most items tax-free. Any Immediate kin would pay a reduced percentage, so for example you could owe less if the account’s co-owner was a parent. Any completely unrelated beneficiaries would typically pay the highest tax rates.
Will I Need to Pay Off the Joint Account Owner’s Final Payments or Bills?
This is one area where we can give you a clear-cut answer and that is a resounding “no”. A decedent’s probate estate is responsible for paying off any final bills or remaining debts. You should note that an account with rights of survivorship – bypasses the probate estate and then moves directly on to any surviving account holder, so that money isn’t actually accessible to the estate, which would otherwise be used to pay the decedent’s final bills and expenses.
The only exception to this rule is if an account co-owner also co-signed with their legal signature on one or more of the debts left over by a decedent. Consumer law supersedes estate law in this particular case.
Basically, you could be responsible for paying off any debts you agreed to when you and the decedent took them on. The same would be true if a co-owner lived – but simply stopped paying on those accounts. The liability for these debts would automatically shift to you.
Want to learn more about the probate process? Read this helpful article from our blog. Or see this resource from Washington State on State statutes pertaining to Ownership of funds after death of a depositor.