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Barbara Lamar
Barbara Lamar, Tax Lawyer, CPA
Category: Tax
Satisfied Customers: 188
Experience:  JD, MBA University of Texas at Austin, over 18 years representing small businesses
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JTWROS versus Transfer on Death

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The total value of my estate is between $400,000 and $500,000. I own stock securities and currently hold all in 6 different accounts and these account are in my name and each of 6 heirs and held JTWROS. I have received some advice that I should consider changing these accounts to my name individually and naming each of those heirs as beneficiary on the account that is currently JTWROS. My goal is to control my assets myself by not having to get approval of the JTWROS to buy or sell assets. Further, I wish to leave my assets to my heirs with the least possible tax liability for them. I am unsure of the best manner to have these accounts held, therefore I have decided to approach this issue from a tax standpoint. Can you recommend the most advantageous way to go to accomplish my goal? Thank you for your assistance.    Frank BarronXXX@XXXXXX.XXX.
Submitted: 9 years ago.
Category: Tax
Expert:  Barbara Lamar replied 9 years ago.
You would certainly have more control over your assets if you owned them in your name only, rather than jointly.

Here are a couple of unpleasant things that could happen with a Joint tenancy with right of survivorship (JTWROS) -- First, your co-owner has the legal right to petition a court for a judicial partition of the assets. A judicial partition, if granted, would force you to distribute your co-owner's share to them, or if the asset cannot be divided, you could be forced to sell it and distribute your co-owner's share of the proceeds to him or her. But, you might say, the people on these accounts with me are my kids (or best friends, or whatever). They'd never do something like that to me! Even if your co-owners never intentionally did anything to harm you, one of them could, say, be sued by someone they accidentally injured in an auto accident. If your co-owner lost the lawsuit, your co-owner's share of your asset could be taken by the judgement creditor.

From a tax viewpoint, when you set up the joint accounts, you gave away a portion of your assets to the person you put on the account with you. If the value of the portion you gave away was more than the exempt amount (currently $11,000 per year per donee) then you should have filed a gift tax return (although you would not have owed any gift tax, based on the total value of your accounts).

Unlike some lawyers, I'm all in favor of do-it-yourself law in areas where the law is not too complex. But estate and gift tax law (and tax law in general) are so complex, and there are so many chances of suffering horrible consequences for making a mistake -- I would strongly advise you to consult a lawyer experienced in estate planning. I'm not licensed to practice law in Florida, but I know lawyers in FL and could refer you to someone. Or you could look in Martindale Hubbell or even the Yellow Pages and do some calling around until you find someone you like who seems to know their stuff.


Expert:  Barbara Lamar replied 9 years ago.
P.S. Gifts and inheritances are not taxable to the beneficiaries, and your estate is not large enough to be subject to estate tax, even after 2010 when the exempt amount goes back down to $1,000,000.

By gifting your beneficiaries early, you take away any benefit they might have received from getting a step-up of basis upon your death (the recipient of a gift takes over the owner's basis in the asset).

Customer: replied 9 years ago.
I thank you for your reply but this doesn't totally answer my question. Perhaps I was not concise enough with my question. Maybe you can answer this part of my question, which I don't believe that you addressed.
I have been advised to change the accounts from JTWROS to Individually owned and name the current JTWROS as beneficiary so that the transfer occurs upon death. I would like to do that. All stock securities are held in street name by my broker or their clearing house. No stock certificates will have to be changed, only the name on the account. If the JTWROS agrees with this procedure, will this change their cost basis?
Expert:  Barbara Lamar replied 9 years ago.
JTWROS has two parts. The JT, or "joint tenancy," part means that the other person has an ownership in the account RIGHT NOW. That's why they could force a partition and why their creditors could take their share.

The WROS, or "with right of survivorship," part means that when the first owner dies, the other owner gets the deceased person's share in addition to the share he or she already owned. This will happen regardless of the provisions in any will or trust you may have made or may make in the future.

In general, you are MUCH better off if you have the accounts in your name only, and the people you want to leave your accounts to are probably better off too, if they're not planning to take possession of the accounts until after your death.

Since the accounts are co-owned at the moment, if you change title to sole ownership by you with the (former) co-owner as beneficiary, your co-owners will have made a gift to you of at least part of their shares and may need to file gift tax returns.

Again, I would urge you to consult a lawyer. The answers I am giving you are necessarily general, since I have no idea what your situation is, other than the information you've provided here. A small change in circumstances can make a HUGE difference in the outcome of various choices.

Barbara Lamar, Tax Lawyer, CPA
Category: Tax
Satisfied Customers: 188
Experience: JD, MBA University of Texas at Austin, over 18 years representing small businesses
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