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Avoiding Estate Planning Mistakes: Preventing Improper Use of Joint Property

 Posted on March 24, 2014 in Estate Planning

Jointly owned property can present many challenges to individuals, especially those couples who are not married and couples where one person is not a U.S. citizen. Without proper consideration, and individual may find himself or herself facing sudden tax-related issues and other concerns that all could have been prevented with proper estate planning.

To start with, joint property opens the door to possible federal and state gift taxes, especially for those non-citizens and non-spouses mentioned above. There's even the potential for double federal estate taxes if the ownership involves two individuals who are not spouses. In this scenario, the whole property is taxed inside the estate of the first to die, excluding where the survivor is able to show their contribution towards that property. Whatever the survivor gets and doesn't use or give away will be included in the survivor's estate, which is also subject to taxation.

Even property that is jointly owned by two spouses has some loopholes: a surviving spouse can leave the property or give away the property to anyone he or she chooses without adhering to the wishes of the deceased spouse. Holding property jointly in this way involves giving up some control at the first death if that individual has specific wishes for the property after he or she passes away. When the jointly held property does pass over to spouse and that spouse immediately spends all assets, the deceased's executor might have a shortage of case to pay estate taxes or other settlement costs.

All of these challenges can be fixed with a little planning. The establishment of a Credit Equivalent Bypass Trust allows for the sheltering of some funds to prevent the double taxation issue. If you would like to discuss your unique needs, contact an Illinois estate planning attorney today for a consultation.
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