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Do you have to pay an inheritance tax on a joint tenancy?

Since many couples delay marriage, or simply do not marry at all, Massachusetts residents may wonder what happens when you own a home with another in a joint tenancy and one person listed on the title dies. One reader wanted to know if there was an inheritance tax in just that situation, so we thought others may be interested in the topic as well.

The surviving homeowner said the estate would not be probated because everything was owned jointly, thus everything would pass on to the survivor automatically. But the question was whether or not an inheritance tax was required on the portion of the estate passed on to the survivor. Estate administration is the process of the passing of property from the person who has died to his or her heirs and beneficiaries.

As the reader stated, some property is considered non-probate assets and transfers automatically upon death, joint tenancy being one of those properties, along with joint bank accounts. It all depends on how the property is owned for it to transfer outside of the estate administration process and therefore there is no need to reference a will or trust, or go through the probate process in the absence of a will or trust.

Now, once that property has been transferred, whether through estate administration or the death of a joint owner, a state inheritance tax of 10 percent may be required. The state inheritance tax is not the same as the federal estate tax, which is required for estates valued at $5 million or more. There are exemptions from the state inheritance tax and the list is rather lengthy. In the event of a joint tenancy transfer the inheritance is exempt as long as the survivor can show evidence of a domestic partnership with the deceased.

Estate planning and probate laws vary from state to state and one of the benefits of consulting with an estate planning attorney in your area is to ensure you plan properly for your individual circumstances. There are requirements for what is valid proof of a domestic partnership in order to ensure a joint tenancy is exempt from state inheritance tax. Simply having ownership set up as a joint tenancy may not be enough to demonstrate your legal status as a couple, other documents such as an affidavit signed by both parties may be required.

Source: "Legally Speaking: Does an inheritance tax have to be paid on property?," Robert McCaig, April 30, 2012

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