Tuesday, October 16, 2012
An Inheritance Nightmare
If you add a child's name to a parent's bank account to allow the child access to funds in case of crisis, you may be creating a financial burden to the parents. The reason for this comment is that in some states, this situation could trigger an inheritance tax payable by the parents if the child dies before the parents do. For example, in the above case, the parents may be considered to have inherited a third of the money in the bank account and have to pay an inheritance tax on this deemed inheritance. This may be the case even if the child had none of her/his own money in the account or never even visited that bank. Currently, 7 states tax inheritances of this type - Indiana, Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Four states - Iowa, Kentucky, Maryland and New Jersey - appear to currently exempt parents of decedents from this inheritance tax law nightmare. Granting the child a power of attorney instead of adding the child's name to the account could have averted this liability.