Improper asset ownership might trigger estate tax. Suppose, example, that Ron and Teri Smith are married, with a total of $4 million in assets. They are also the beneficiaries of each other’s retirement accounts while everything else is held jointly, with right of survivorship.
If Ron dies in 2006, everything will pass to Teri, who will now have a $4 million estate. If Teri dies in 2007 with a $4 million estate, that would be $2 million over the exemption amount, taxed at 45 percent, and the federal estate tax bill would be $900,000.
That tax could have been avoided with a $2 million bequest at Ron’s death in 2006. That bequest might have gone to their children, for example, or to a trust structured to benefit Teri but be out of her estate. However, because their assets were owned jointly it was impossible for Ron to leave assets to anyone but Teri.
Therefore, families with estate tax concerns should modify their use of joint ownership between spouses. Each spouse should have some assets in his or her own name that can be left to other parties at the first death, sheltered by the estate tax exemption.
