Joint ownership if stocks

[Greenbriar]

Just got a call from a client whose husband died last year. Apparently she put all their stocks in joint ownership with her daughter, so instead of her daughter being her beneficiary, daughter is co-owner. Seems to me that this constitutes a gift requiring a gift tax return. Please comment. Thanks.

[BOB W]

My understanding is that it is not a gift until the daughter withdraws any of the money. Only the portion that she withdraws is considered a gift.

[Bees Knees]

Joint tenancies are considered gifts depending on the type of asset. TTB, page 21-24 says the following:

Creation of a joint tenancy completes the gift:
• Real property.
• Stocks and mutual funds.
• U.S. Treasury Securities other than U.S. Savings Bonds.

Withdrawal of assets from joint tenancy completes the gift:
• Bank and credit union accounts.
• Brokerage accounts in street name.
• U.S. Savings Bonds. If a purchaser registers bonds with a co‑owner,
a gift is complete when the bonds are reissued in the co-owner’s
name alone or when the purchaser allows the co-owner to redeem
the bonds and keep the proceeds. In both situations, the purchaser
is responsible for income tax on interest accrued through the date of
the gift.

However, even though the transfer of stock into a joint tenancy is subject to gift tax, you still get step up of basis at death of original owner if the person receiving the gifted stock does not pay for his or her share.

TTB, page 21-25 says:

Joint tenancies at death. If the original owner is still a joint tenant
at death, the value of the entire property is included in the
gross estate on Form 706. If the gift was reported on Form 709, the
taxable amount is not included in adjusted taxable gifts on line 4
of Form 706. Any gift tax paid is credited to the estate. The asset
is inherited and receives stepped-up basis.

So if the gift of stock into joint tenancy did not cause any gift tax to be paid because it was below the exemption amount, no harm was done.

[BOB W]

Joint tenancies are considered gifts depending on the type of asset. TTB, page 21-24 says the following:



However, even though the transfer of stock into a joint tenancy is subject to gift tax, you still get step up of basis at death of original owner if the person receiving the gifted stock does not pay for his or her share.

TTB, page 21-25 says:



So if the gift of stock into joint tenancy did not cause any gift tax to be paid because it was below the exemption amount, no harm was done.

I know the poster said stocks, maybe Greenbrier meant Brokerage account. Brokerage accounts have beneficiaries while stocks don't. If "street name" means their individuals name then gift is considered as I stated in my first reply. (Not considered a gift until withdrawn).

[Greenbriar]

Not brokerage accounts

Thanks for the replies. This ATT stock, so exempt from gift tax return? Thanks.

[Davc]

"In street name" means that the stocks are held electronically by the broker. Most individuals hold their stocks in this manner. The actual company, AT&T, in this case would show the stock as held by the broker. The TP's name would not appear in the records of AT&T.

[JohnH]

Just to carry this a step further, client and his wife own several stocks and couple of MLP's in a brokerage account as joint tenants.
They decide to set up a separate brokerage account in the wife's name only, and they transfer some of the stocks and MLP's into the wife's account.
(This change does not involve a death, divorce, or other life event.)

Has a sale transaction taken place? Gift? No change?

[FEDUKE404]

Why joint?

If I understand this correctly, husband (deceased) had all of stock transferred to spouse only (marital exception, etc).

The usual stepped up cost basis, of the inheritance type, would apply to those assets. A plain vanilla scenario.

At a later time, the widow changed ownership of all inherited assets from single ownership to joint ownership with daughter?

Enter situations explained by BOB W and Bees Knees. (They know what they are talking about!)

Not knowing the relevant facts here, but assuming this is/was a fairly large estate, what would (would have been, if now too late) the merits of having the widow's new investment account set up as TOD ("transfer on death") to daughter instead of joint ownership with daughter?

The lawyers and CFPs will have to chime in, but **if** widow's intent is to (eventually) have daughter own everything then this would seem, at least somewhat, logical.

I will enjoy reading the comments and learning more on the topic!!

FE

[Burke]

There might be other considerations to think of in this situation. Joint ownership with the daughter may inject a liability contingency should the daughter be divorced, sued, etc. etc. In addition, she has full access to all the money now, which may or may not be a problem. Then again, it might have been done for Medicaid purposes.