Payable on Death

[Kram BergGold]

My client's brother died on Oct 31, 2015. There were 5 bank accounts all POD to my client. I am thinking that the deceased brother pays taxes on ten months of interest and my client pays on two months, regardless of when my client got around to putting the accounts in his name. For the record, one account was transferred to my client's name in late Dec 2015 and the other four in April 2016. Am I correct?

[taxmom34]

I didn't know that banks had POD accounts, I thought they had joint accounts. the only time I encountered POD was when I bought series EE bonds.

[FEDUKE404]

POD account transfers

POD and TOD accounts have been around for a long time. I personally have both in place for some accounts.

In answer to the tax question: IN THEORY the deceased cannot receive income. Upon proper, and timely, notification of the death of the original account holder, the registration of the account should have been changed to the surviving brother. Otherwise, IN THEORY the income from the original account would go to the estate of the deceased.

But, in reality, these transfers are never cut and dry. I'm unsure as to whether a nominee distribution approach is possible. . .probably not. You will just have to, as best you can, calculate the correct numbers for both brothers and report accordingly.

The account transfers should have occurred as soon as reasonably possible in 2015. The fact that the deceased (on paper) has some *2016* income could create some issues. . . .

FE

[Roland Slugg]

Yes, you are correct. The legal status of POD accounts is not clear. Are they the equivalent of living trusts? Joint tenancies? Something else?

In any case, all the interest reported on forms 1099-INT should be reported on the decedent's return, then the portion paid after he died should be backed out and reported on the brother's return. Attach a little 3-column schedule to the return showing the gross interest reported on F-1099, the amount taxable to the taxpayer and the amount taxable to the other taxpayer. Include the name and SSN/TIN of the "other" taxpayer. Somewhere in the IRS instructions ... for Schedule B, perhaps ... it covers this.

[FEDUKE404]

How POD works

Yes, you are correct. The legal status of POD accounts is not clear. Are they the equivalent of living trusts? Joint tenancies? Something else?

My understanding of POD accounts:

John owns a bank account, titled in bank records POD to Jane. John dies. Jane presents proper identification and proof of death of John. Bank transfers all assets from John's account into a new account owned by Jane.

John could also have designated similar except 50% to Jane and 50% to Joe. TWO new accounts would be created, with each new account having half of the assets from John's account.

No trust expenses and/or management. No will/executor involvement. No probate. Simple as pie.

Of course, every person's situation is different. I'm sure your bank can explain it to you, as there may be some varying state issues involved.

( TOD is a similar process, for investment accounts. There may be more paperwork / post-death actions involved re splitting of assets and/or cost basis issues. Values as of date of death, not later date of transfer, will be relevant. )

FE

[Burke]

Yes, you are correct. The legal status of POD accounts is not clear. Are they the equivalent of living trusts? Joint tenancies? Something else?

In any case, all the interest reported on forms 1099-INT should be reported on the decedent's return, then the portion paid after he died should be backed out and reported on the brother's return. Attach a little 3-column schedule to the return showing the gross interest reported on F-1099, the amount taxable to the taxpayer and the amount taxable to the other taxpayer. Include the name and SSN/TIN of the "other" taxpayer. Somewhere in the IRS instructions ... for Schedule B, perhaps ... it covers this.

You are correct about reporting the interest (and/or dividends) between the deceased and new owner. It is constructive receipt to the new owner, even if the physical transfer has not been completed at the bank or financial institution. Same with any type of financial account with the TOD/POD designation. In the real world, the transfer never happens on the date of death anyway. Like insurance companies, the custodial institutions require death certificates to effect these changes, and that can take at least several days to several months. The proper amounts of interest and/or dividends to allocate are fairly easy to figure from bank or brokerage records. The 1099's are usually always wrong due to these delays.

POD/TOD's are beneficiary designations. They are different from joint tenancies. The named POD/TOD person or entity has no ownership rights prior to death of the primary owner.