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Distributing Dad's money as a joint tenant

Dear Tax Talk,
My spouse was named as a joint tenant with rights of survivorship on her late father's stocks and bank accounts. She is executrix of his will, which calls for his estate to be shared equally by his three children.

Will she face gift-tax implications if she merely moves all of his assets, including these stocks and monies, into the estate account and distributes them according to his will? Thank you.
-- Charles

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Dear Charles,
It's not uncommon for elderly folks to redesignate their bank accounts as joint tenant with rights of survivorship, or JTWROS. The account designation allows the survivor to easily wrap up the decedent's financial affairs and avoid probate. Of course, it could also cause some problems if the joint tenant is not completely trustworthy. Either that person can take from you while you're alive or not honor your wishes, as expressed in your testament, when you pass away. It appears that your father-in-law had the utmost faith in your wife, and now she wishes to honor his wishes.

When the account was redesignated as JTWROS, it was not your father-in-law's desire to make a gift of the funds to your wife. Instead it appears his intention was to simplify administration of his affairs. Accordingly, she will not have any gift-tax consequences by simply making a distribution of the assets to each of her siblings since it is not her intention to make a gift, but rather divide her father's estate.

Unless an estate account will be opened for other reasons, your wife does not need to transfer the money into such an account for purposes of division. In fact, by opening an account for solely this purpose, you would be defeating the original purpose of having these assets pass outside of probate. Similarly, if an estate account is opened and she is transferring funds to that account, she is acting in her capacity as custodian of the funds and is not making a gift.

Bankrate.com's corrections policy
-- Posted: Oct. 7, 2005
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