An elderly couple recently learned the hard way that do-it-yourself disability planning can have serious unintended consequences. Like many people before them, the couple followed the advice of friends, their friendly neighborhood banker, or (our favorite) “Marge” at Burger King, and added their daughter’s name to their bank account. This was their way of ensuring that someone would be able to handle their finances if one or both of them became disabled.
No one, not even the bank where the account was located, thought to tell the couple that they had essentially made their daughter a one-third owner of the account. The couple didn’t find out until, after the untimely death of their daughter, they discovered that they owed state inheritance tax on the one-third of the account that their daughter “owned” at her death. They had to pay thousands of dollars in taxes because state law said that the couple had “inherited” their own money!
The couple in this story lived in Pennsylvania, one of seven states with a state inheritance tax. Although Florida is not currently one of the seven (the others are Indiana, Iowa, Kentucky, Maryland, Nebraska, and New Jersey), state law is ever-changing so it is always best to consult with an attorney rather than trying to do your own estate or disability planning. With proper legal advice, the Pennsylvania couple could have achieved their objectives and saved thousands of dollars by simply executing a well-drafted durable power of attorney.
For more on this story, see http://pubs.aarp.org/aarpbulletin/201210_DC/?pg=6&pm=2&u1=friend#pg6 .