In the US, there is no inheritance tax but there is estate tax. Joint bank accounts are subject to estate tax if the total value of the gross estate of the deceased bank account owner is above the federal and state exemptions.
Estate tax is a tax imposed on the gross estate of a person who has died (the decedent). As of 2022, federal estate tax is only imposed if the gross estate of the decedent is above $12.06 million. Each state has its own exemption amount for state estate tax, which is usually lower than the federal estate tax exemption. In New York, the exemption amount for estates is $6.11 million as of 2022.
In computing whether a decedent’s estate has to pay estate tax, the decedent’s gross estate is computed. Gross estate includes all property of the decedent and also includes:
- Certain transfers made during decedent’s life without an adequate and full consideration;
- Includible portion of joint estates with right of survivorship
- Certain life insurance proceeds (even though payable to beneficiaries other than the estate)
- Property over which decedent possessed a general power of appointment
- Dower or curtesy of the surviving spouse
- Community property to the extent of decedent’s interest as defined by applicable law
The gross estate of the decedent should not be confused with the probate estate. The gross estate includes all property of decedent, such as property under revocable trusts, life insurance proceeds, and even accounts with designated beneficiaries. The probate estate excludes trust property and property with designated beneficiaries.
Joint bank accounts of married couples
Joint bank accounts of married couples are included in the gross estate of the spouse, to the extent of the spouse’s share in the bank account as provided by law. Usually, a deceased spouse’s interest in a joint bank account held with the surviving spouse is presumed to be fifty percent (50%). The same rule applies to jointly held property with rights of survivorship by spouses or tenancy by the entirety. Thus, in a joint bank account of a married couple, fifty percent (50%) of such account is included in the deceased spouse’s gross estate for purposes of computing estate tax.
Joint bank accounts of non-married couples
Joint bank accounts of non-married couples are also included in their gross estate, to the extent of such person’s contribution to the joint bank account. It is the executor’s duty to submit documents showing that the jointly held property was not entirely acquired using consideration furnished by the decedent. Otherwise, the entire property will be included in the decedent’s gross estate. The gross estate will be used to compute whether the estate is subject to estate tax.
In New York, the presumption that a joint bank account is held with rights of survivorship arises when the signature card or ledger is shown to include words of survivorship. These words of survivorship show the intent of the joint owners to create this type of bank account. However, this presumption can be rebutted by showing proof that the joint bank account was created for the convenience of one joint owner only. When only one joint owner contributed money to the bank account or when it shown that the other joint bank account owner was added subsequently for the purpose of helping the original bank account owner with his financial affairs, the presumption that the bank account is held with rights of survivorship is rebutted, and the joint bank account is considered for convenience only.
Thus, in a joint bank account for convenience, the entire value of the bank account is included in the estate of the joint owner who solely contributed to the bank account or for whose convenience the bank account was established. In a joint bank account with rights of survivorship, the amount included in the gross estate of the decedent depends on the amount the decedent contributed to the bank account.
Although the rules on joint bank accounts can be straightforward, its application can be complex and will depend on the particular circumstances of each case. You may need the assistance of an expert in evaluating your case. Should you need further clarification, we at the Law Offices of Albert Goodwin are here for you. We are located in New York, NY. You can call us at 212-233-1233 or send us an email at [email protected].