Avoid Joint Ownership Mistakes

From CBN Planned Giving

Planning for the distribution of assets by joint tenancy seems simple, but doing so needs to be considered very carefully. Creating a joint ownership for property with a child, such as bank accounts, where the child does not contribute to the property will be deemed a gift. For instance, if you add your child as a joint owner to a checking or savings account, then any amount withdrawn by the child will be deemed a gift, or if you buy real estate and name your child as a joint owner, even though the child did not contribute anything for the property, then the child's interest in the property will be deemed a gift.

Gifts that are more than the gift annual exclusion of $14,000 for the calendar year are subject to gift tax.

Stepped-up Basis
When a parent adds the name of a child to the title of their property, creating joint property ownership, that child also receives the tax basis of that property. When the surviving child, a joint owner, sells the property the tax treatment would be the same as if the property had been sold by the original owner parent. The asset would lose its "step-up" in basis and potentially result in a large capital gains tax on the appreciation (selling price less cost basis) when it is sold.

When wealth-transfer planning for your family, treatment of assets eligible for a stepped up basis need to be given consideration. If property has already appreciated significantly, then it usually is better to leave it as part of the estate, since it will receive a stepped-up basis upon inheritance by the child. This is the stepped-up basis or readjustment of the value of an appreciated asset for tax purposes at death. With a step-up in basis, the value of the asset is determined to be the higher market value of the asset at the time of inheritance, not the value at which the original party purchased the asset.

For example, when you sell an asset such as stock, you owe capital gains tax on the difference between what you paid for it (your basis) and what you get for it. But if you inherit certain assets you can step up their tax basis to whatever they were worth at the benefactor’s death. That means highly appreciated inherited property can be sold immediately with no capital gains, or later, with all the gains before you inherited it disregarded. By contrast, if you receive property from a living donor (transfer by joint ownership), you take on his or her tax basis when the time comes to calculate capital gains.

Good and Bad Assets to Leave Children
To eliminate or reduce taxes at death to heirs, strategically plan giving assets based on the type of asset and the type of beneficiary.

To help reduce the income tax burden to family recipients, consider leaving children assets that have tax-free income (e.g., a Roth IRA) or appreciated assets whose basis can be stepped up at your death (e.g., real estate or appreciated securities in a taxable account).

Consider donating to qualified charities other assets that would otherwise be subject to income taxes if passed to family members. A tax-exempt public charity can withdraw pre-tax monies from non-Roth retirement accounts, such as Traditional IRAs and 401(k)s without paying income taxes. In addition, an estate could take a charitable deduction which would reduce the size of the taxable estate.

Revocable Living Trusts - A Better Alternative
The issues discussed above are just a few of the problems people face with joint tenancy. One should not presume that joint tenancy is a simple and inexpensive estate planning solution. The Revocable Living Trust is a better solution because it protects a person’s estate from their children's creditors, it allows a person to avoid probate, and it preserves both a couple’s federal gift and estate tax exemptions.

The Revocable Living Trust also gives greater control and flexibility. If a person later changes their mind and wants to leave all or part of their property to others or if they want to exclude one of their children from inheriting, they will be able to do so. They will also be able to insure that their children inherit property even if their spouse remarries. If they decide to sell their property they can do so without anyone else’s consent. Finally, a Revocable Living Trust avoids the necessity of a probate proceeding if the person becomes physically or mentally incapacitated because the successor trustee takes over without court intervention.

It is recommended you consult with your tax advisor and attorney when implementing your estate plan.

Create a Legacy
Please let us know if you have considered CBN for a Legacy planned gift. We want to personally thank you and let you know how much we appreciate your support. Your gift will help CBN continue its mission to impact the world with the Gospel of Jesus Christ.

“A charitable bequest or beneficiary form designation are excellent ways to create a lasting legacy.”

Free Will and Trust Guide Kit: Request by e-mail to Frank.Nico@CBN.org

Your legacy gift supports the CBN Family of Ministries through mass media, primarily television broadcasts and digital media, and humanitarian projects: The 700 Club and other CBN TV programs worldwide, CBN News, CBN prayer centers, Superbook animated Bible series, Orphan's Promise, CBN Israel, U.S. and international humanitarian and disaster relief aid through CBN International and more.

The Leave A Legacy estate planning presentation by attorney Suzanne Pennington can be viewed at www.CBNLegacy.org

If you have a question or would like more information send e-mail to Frank.Nico@CBN.org or call our toll free number at 1-800-333-2373.
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