Have a Tax Question? Ask a Tax Expert
Here is a good starters article and then we'll get a little more specific:
Joint tenancy may be inappropriate The typical form of home ownership among married couples is a joint tenancy with right of survivorship or, in some states, a tenancy by the entirety. In either case, each spouse owns an undivided interestundivided interest in the property - and on the first spouse's death, the entire property automatically passes to the survivor. This survivorship feature makes joint tenancy one of the simplest ways of transferring an interest in property. In some situations, however, the surviving spouse's estate may pay a high price in transfer taxes for that simplicity. Although the unlimited marital deduction ensures that the home will pass to the survivor free of any transfer taxes, the property will be subject to estate tax in the survivor's estate. For estate planning purposes, it may make more sense to have the first spouse's interest pass to a nonmarital or family trust or to other persons. In such cases, the first spouse's estate will escape estate tax on that interest through use of the unified credit, while the survivor's estate will avoid estate tax on that interest because it is not part of the survivor's estate. Occasionally, the surviving spouse will not be aware of the possible adverse estate tax consequences of a joint tenancy until after the first spouse's death. By executing a qualified disclaimer of the deceased spouse's interest in the joint tenancy property, the interest will not pass to the survivor and, therefore, will not be part of the surviving spouse's estate. The survivor will retain only the one-half interest in the property that he held prior to the decedent's death.
1. No, $0 (ie, nothing). She is not receiving the property, for she has disclaimed it (See IRC 2518 below, and also this quote from the Form 706 instructions, along with Schedule A of Form 706 for the 50% interest in the real estate that is included in the estate and on Schedule E per IRC 2040(b)(2), also below).
2. $25,000 on both B and M (part 1 of E will list the $50K total and $25K included on line 1b).
"1b Amounts included in gross estate (one-half of line 1a)"
"On Schedule B, list the stocks and bonds included in the decedents gross estate."
"You may list on Schedule M only those interests that the
surviving spouse takes:
1. As the decedent's legatee, devisee, heir, or donee;
2. As the decedent's surviving tenant by the entirety or
§ 2040. Joint interests
How Current is This?
(a) General rule The value of the gross estate shall include the value of all property to the extent of the interest therein held as joint tenants with right of survivorship by the decedent and any other person, or as tenants by the entirety by the decedent and spouse, or deposited, with any person carrying on the banking business, in their joint names and payable to either or the survivor, except such part thereof as may be shown to have originally belonged to such other person and never to have been received or acquired by the latter from the decedent for less than an adequate and full consideration in money or money's worth.....:
(b) Certain joint interests of husband and wife
(1) Interests of spouse excluded from gross estate Notwithstanding subsection (a), in the case of any qualified joint interest, the value included in the gross estate with respect to such interest by reason of this section is one-half of the value of such qualified joint interest.
(2) Qualified joint interest defined For purposes of paragraph (1), the term "qualified joint interest" means any interest in property held by the decedent and the decedent's spouse as-
(A) tenants by the entirety, or
(B) joint tenants with right of survivorship, but only if the decedent and the spouse of the decedent are the only joint tenants.
(a) General rule For purposes of this subtitle, if a person makes a qualified disclaimer with respect to any interest in property, this subtitle shall apply with respect to such interest as if the interest had never been transferred to such person.
Thank you for your question.
Here is one more good article for using the consideration method, worth mentioning:
Joint tenancy property
When a person dies owning property in joint tenancy, one of two rules is applied to determine the portion of value subject to federal estate tax. Under the "consideration furnished" rule, applicable to all joint tenancies except those involving only husbands and wives, the full value of the property is included in the estate of the first person to die for federal estate tax purposes (and the full value receives a new income tax basis), except to the extent the survivor can prove he or she provided the money when the property was acquired or the mortgage paid off.
A 1992 case and five later cases have allowed an estate to apply the consideration furnished rule at the death of the first of a couple to die survived by the other spouse. The outcome can be highly beneficial to the estate where land was purchased after 1954 and before 1982 with the first spouse to die providing a disproportionate part of the purchase price. If the first to die provided all of the funding on acquisition, the property (farmland) was fully includible in the estate of the first to die, the full amount was deductible under the federal estate tax marital deduction and the entire amount of gain was eliminated for income tax purposes. The latter point is especially important where the property is sold after the first death.
The "fractional interest" rule makes one-half the value of joint tenancy property held by a husband and wife subject to federal estate tax. Each is considered to own half the property for federal estate tax purposes.
A major problem with joint tenancy is that it can create a heavy tax burden at the survivor's death. Since property is transferred outright to the survivor, the entire value of the property is included frequently in the estate of the survivor. For those concerned with federal estate taxes, the best strategy, therefore, might be to get out of joint tenancy.
I'm confused. Your response to question 1 stated 50% of real estate should be included on Schedule A. The property was owned jointly with right of survivorship. I think the instructions state that all property held jointly with right of survivorship should be listed on Schedule E. Therefore in this example nothing would be reported on Schedule A.
You said the stock should be reported on Schedules B, M and E. The stock was owned as tenants in common, not tenants in the entirety and I don't think it can reported on both Schedules B and E.
1. Sorry for any confusion. Question 1's answer was no, not on Schedule M. The amount goes on Schedule E for the real estate as you noted, where only 1/2 the fair value is considered to be included in the estate per above. The mention of the 50% schedule A interest was a reference to real property included in the gross estate (you describe following the Schedule A instructions, per Schedule E, on Schedule E).
"Under "Description," describe the property as
required in the instructions for Schedules A, B, C, and
F for the type of property involved. For example, jointly
held stocks and bonds should be described using the
rules given in the instructions to Schedule B."
"If the total gross estate contains any real estate, you must
complete Schedule A and file it with the return."
2. Again, "$25,000 on both B and M." This is tenants in common as you say, so it is not listed on Schedule E, for if it were as though it is JTWRS, then the 2040(b)(2) 50% rule would apply, so basically again pointing out that $25,000 would be included either way in the estate. Because she did not disclaim the stock, it can appear on Schedule M, unlike the real estate.
"Do not list on this schedule property that the
decedent held as a tenant in common, but report the
value of the interest on Schedule A if real estate, or on
the appropriate schedule if personal property..."
Don't hesitate if you need any more clarification. I'm sorry again for any confusion.