Do You Have to Pay Inheritance Taxes on Joint Checking Accounts?

Depending on the type of account and the deceased joint owner's total estate value, you may or may not have to pay inheritance taxes on a jointly held account. A joint account joins together two or more people in one of two legal ways, which each has its own tax consequence. Additionally, federal inheritance tax only kicks in after passing a value threshold, but part of the account can still be subject to state taxes and other fees.

A joint checking account places the names of two or more people -- called tenants -- as owners of an account. Both people have full rights to the account which means that either tenant can individually write checks, make decisions or use all of the money in it for their own needs, even though both people may be putting money into the account.

A joint checking account where both tenants have right of survivorship eliminates all inheritance considerations. When one tenant in a right of survivorship account dies, the surviving tenant assumes full ownership over the account and becomes the sole tenant. On a right of survivorship account, the deceased ceases to own any of the money in the account when he dies, eliminating the value from his estate and therefore inheritance taxes.

A joint checking account can also list the tenants as having a tenancy in common. While a tenancy in common gives the tenants more control over where the money goes, it also complicates the account in the case of a death. The deceased tenant's share -- almost always half of the account -- passes to his estate, and can be transferred to a separate beneficiary of his will or given back to the other tenant. However, the deceased's share must go through a process called probate, which is essentially accounting for and then distributing the deceased's assets.

In the case of a joint checking account with tenancy in common, the deceased's share of the account only owes federal inheritance tax if the estate's total value passes the $5 million exemption mark. However, a state tax authority may charge the estate a tax on a much lower amount. State tax and probate laws differ considerably; consult with a competent attorney.