Gift & Estate Taxes

[embe]

About 7 Years ago my mom (widow at time) put my name with hers on a stock certificate. The certificate is written as her and me. I have never received anything from this and only realized she had done this after she asked me to sign a voting ballot for the company. She receives all the money and pays taxes based on her SS number. I recently found out that when she had the stock changed to both names she never filed a gift tax return. Well now she is getting older and not doing so well. I am wondering what I will do if she should leave us. Is there something I should do now while she is still with me? Did she break the law? The amount is under $400,000 and I am a Florida resident.

What should I do at this point?

 

[loku]

Gift of stock

I assume that you hold the stock as joint tenants.

The rule for gift tax purposes is that if an individual, with his own funds, buys property and conveys the title to himself and others as joint tenants with rights of survivorship and under local law the noncontributing joint tenant has a right to sever the joint interest, there is an immediate gift to the noncontributing joint tenant of equal shares of the property. (Reg. section 25.2511-1(h)(5)).

What that means is that if under Florida law, you have the right to sever the joint interest (the right to have the shares divided with you woning half and your mother owning the other half), then there was a gift when the stock was transferred. If that is the case, then there should have been a gift tax return, but there would have been no tax because the lifetime exclusion is over the amount of the gift.

If your mother was to die, then the stock would become yours (again assuming it is in joint tenancy). If, under the above rule, there was a gift, half of the value of the stock would be included in the taxable estate. If there was no gift unde the above rule, then the entire value of the stock would be in the taxable estate.

So what you can do is find out whether you have the right to sever the ownership under Florida law. If so, file a gift tax return for the gift and claim the exemption. Otherwise, there is nothing you need to do at this time.

 

[PhillyGuy]

I thought that with joint tenancy, the decedent's share flows to the survivors outside of the estate and without going through probate?

Also, would the result be different if they were tenants-in-common rather than joint tenants?

 

[loku]

You are correct in that with joint tenancy, the survivors get their share without going through probate: the property is not part of the probate estate. However, the rule I gave has to do with the TAXABLE ESTATE for federal Estate Tax Purposes. Remember the same lifetime exclusion (currently $675,000) applies to both the Estate Tax and the Gift tax.

 

[PhillyGuy]

Thanks!

 

[loku]

You're welcome.