20 Dec Mom and daughter have a joint account. What happens to the money?

Q. I have a question regarding a joint bank account in New Jersey. A mother and daughter are joint account holders. The mother has funded the account entirely. If she requires nursing home care, are the funds in that joint account always exposed? What would happen if the daughter withdraws the money? And if the mother dies, does the daughter have an estate tax issue to deal with, or does the daughter simply go to the bank, take out the money, close the account and put the money in a new individual account, with no tax consequence?
— Daughter

A. There are a few things to consider.

Importantly, we’re going to assume that you’re contemplating Medicaid to pay for the mother’s care in a nursing home.

The Medicaid agency will treat the joint account as belonging to the mother only since she is the one who funded the account entirely, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.

“If the daughter withdraws the money from the account and does not spend the money solely on the mother, then the Medicaid agency will treat the withdrawal as a gift from the mother to the daughter,” Whitenack said. “If the Medicaid application is made within five years of that withdrawal, the Medicaid agency will impose a penalty period on the mother when the mother otherwise has less than $2,000 of countable assets during which period there would need to be another source of payment to the nursing home.”

If the mother dies and there is money left in the joint account, there should be no state estate tax based on current law, Whitenack said. And unless the mother has substantial other assets, the transfer would be free of federal liabilities, too.

“New Jersey repealed its estate tax in 2018 and the federal exemption for estate tax purposes is $12.06 million in 2022 and 12.92 million in 2023,” she said.

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This story was originally published on Dec. 20, 2022.

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