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Author: hondochica Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: how to split a joint account Date: 3/12/2014 3:47 PM
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Greetings Fools;

I opened a join acct w/ my sister with mom's $$ a few years ago. Mom gave each of us the then max of 12k; so the acct was opened with $24k. We expected needing the $$ to care for mom, but she passed quickly w/o the need for long term care. I am the 'primary' acct holder. The acct is in a brokerage acct at Fidelity, invested in various stocks. It now has a value of @ $35k. I was the primary beneficiary of mom's estate, so I ended up w/ the bulk of the $$.

To fairly split the estate, I would prefer to just give this entire acct to my sister - basically take my name off the acct. What's the fastest way for my sister to take full ownership with minimal cost/taxes. Can we start by just splitting the acct into two and each take (roughly) half, and then 'gift' her the annual max until she has all of it? Do I really need to discuss this w/ a tax advisor? Are there complications with gifting stocks?

Thanks
Kelly
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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120435 of 121219
Subject: Re: how to split a joint account Date: 3/12/2014 5:18 PM
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Now, determine the cost basis of the stock. Since it wasn't in your mother's name, it doesn't receive a stepped up cost basis.

It should be easy to have her create a new account and transfer stock to that account. One option is you don't want to create two new accounts, transfer 28K (14K gift limit and 14K of "her" stock), and then transfer the rest after the end of the year.

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Author: hondochica Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120437 of 121219
Subject: Re: how to split a joint account Date: 3/12/2014 10:38 PM
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"you don't want to create two new accounts" . . . so keep the joint acct for now - have my sister open a new account and transfer 14k of "her" stock and 'gift' (?) 14k of additional stock? Hold the remainder in my name in the original joint acct til next year?

Why am I determining the cost basis of the stock? Is that 14k of current value or of original cost basis? Don't see where that fits in. I wasn't thinking about 'stepped up cost basis' - I knew that didn't apply.

Thanks

Kelly

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Author: 2gifts Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120438 of 121219
Subject: Re: how to split a joint account Date: 3/13/2014 8:26 AM
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Why am I determining the cost basis of the stock? Is that 14k of current value or of original cost basis? Don't see where that fits in. I wasn't thinking about 'stepped up cost basis' - I knew that didn't apply.


You need cost basis because that is the value of the stock that you are giving to your sister. She will have your cost basis and your holding period, and the current value of the stock does not come into play at all. When she sells the stock, she will use your cost basis to determine her gain or loss, and pay the tax accordingly.

So if the stock is worth $20k now, but you only paid $10k for it, your basis in it is $10k, and that is the value of the gift you are giving your sister.

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120439 of 121219
Subject: Re: how to split a joint account Date: 3/13/2014 9:48 AM
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This thread is so full of misinformation that we need to start over.

Original account was established by gift from mother to two children. If mother gave stocks as part of the gift, the children need to know what the mother's cost basis was in the stocks.

Now hondochica wants to give all of account to sister. Sister already owns 1/2 of account and can transfer that amount to a new account her name alone immediately with no tax consequences.

Hondochica can transfer remaining value of account to sister at $14K/year to avoid having to file a gift tax return or can transfer everything at once and file a gift tax return reporting the excess value over $14K. The excess will count against hondochica's lifetime gift tax exclusion which is currently $5.34million.

Hondochica needs to know the cost basis of the stocks transferred to sister because sister will use that cost basis and holding period to determine any gain if she sells the stock. She will use the market value on the date of the gift to determine any loss if she sells the stock. Note that if any of these stocks were part of the original gift from mother, mother's cost basis is transfered to sister.

Ira

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120441 of 121219
Subject: Re: how to split a joint account Date: 3/13/2014 11:46 AM
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Why am I determining the cost basis of the stock? Is that 14k of current value or of original cost basis? Don't see where that fits in. I wasn't thinking about 'stepped up cost basis' - I knew that didn't apply.

You said your mother gave you $24K, and it is invested in various stocks. If that was $24K in cash, then it is close to the cost basis of all of the stocks.

It doesn't tell your sister the cost basis of the individual stocks. You should give your sister statements showing the purchase of the shares.

Were any dividends reinvested? Your sister will also need the cost basis of any shares bought with reinvested dividends.

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Author: hondochica Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120442 of 121219
Subject: Re: how to split a joint account Date: 3/13/2014 6:48 PM
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Thanks so much to all for taking the time to reply. I really appreciate your help!

So - first to recap and clarify: The acct was opened with $24k cash - half mine half sis. $$ were invested in various stocks. No stocks were sold, and no dividends reinvested - but we'll worry about dividends later.

So . . my sister can take all shares of stock whose cost basis totals $12k (original amt) and transfer to her own acct - no questions asked. I can gift all of my shares of stock at once, 'cuz the original cost basis is $12k - less than current $14k max, and we can be done with the whole thing!

Now, do I need to file any paperwork with anybody about gifting my $12k shares of stock? (aside from giving my sister the purchase paperwork).

OK - this got tricky: Ira said: "Hondochica needs to know the cost basis of the stocks transferred to sister because sister will use that cost basis and holding period to determine any gain if she sells the stock. She will use the market value on the date of the gift to determine any loss if she sells the stock." OK - I can't quite figure out what you're saying here. And I wrote this long attempt to clarify, and then googled 'gifted stock basis' and discovered . . I don't want to tackle this now. It doesn't matter. I have the original purchase paperwork and will deal with it later!! so . .. nevermind! ;-))))

Now. . . dividends . . which were cash deposits into the acct - no dividends used to repurchase stock. I doubt there is more than $2k of dividends in the account, perhaps I can just gift it all to my sister and still remain below the $14k for this year. OR do I have to figure out what dividends go with what shares when we 'split' the acct?


thanks - I hope I have not further complicated this.

Kelly

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Author: JAFO31 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120443 of 121219
Subject: Re: how to split a joint account Date: 3/13/2014 7:18 PM
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hondochica: "Thanks so much to all for taking the time to reply. I really appreciate your help!

So - first to recap and clarify: The acct was opened with $24k cash - half mine half sis. $$ were invested in various stocks. No stocks were sold, and no dividends reinvested - but we'll worry about dividends later.

So . . my sister can take all shares of stock whose cost basis totals $12k (original amt) and transfer to her own acct - no questions asked."


I will defer to the tax pros, but I think not. I believe your sister can transfer 1/2 of each stock position to her own account, no questions asked.

"I can gift all of my shares of stock at once, 'cuz the original cost basis is $12k - less than current $14k max, and we can be done with the whole thing!"

No, not as you can explain it. Your cost basis had nothing to do with the value of the gift when you make it. The value of the gift when you make it is the value of the stock that day (exact details left to the resident pros). Nonetheless, you could all your shares at once, but if the current value is more than the annual exclusion, then you would need to file a gift tax return.

"OK - this got tricky: Ira said: "Hondochica needs to know the cost basis of the stocks transferred to sister because sister will use that cost basis and holding period to determine any gain if she sells the stock. She will use the market value on the date of the gift to determine any loss if she sells the stock." OK - I can't quite figure out what you're saying here."

Let me say it another way. one can give away tax losses. if you gift stock 9and not cash), your sister needs to know how to calculate her gain or loss when she sells.

First, holding period - your sister gets your holding period, so she needs to know when the stocks were acquired.

Second, for purposes of calculating gain, your sister needs to kow the purchase basis; you have not paid federal income tax on the gains since you purchased (because you never sold and realized them), so your sister will need to pay them when she sells. Hence, Ira's comment that your "sister will use [your original] cost basis and holding period to determine any gain if she sells."

Losses, however are calcuated differently (because a low rate taxpayer can not give losses to a high rate tax payer. You sister will only realize a loss if she sells for less than he value on the date that you gift the stock. Hence, Ira's comment that your sister "will use the market value on the date of the gift to determine any loss if she sells the stock".

As a result of those rules, it maight make sense for you to sell any losers, realize the loss, and gift your sister the net proceeds. If not, any losses that have accrued to date never get realized, and there may be a range in which your sister call sell without a gain or loss.

An example might make this easier (and I will skip the joing account issues in this example). Assume that you bought 10k of stock 2 years ago. In example one, it it worth 12k on the date you gift it to me. When I sell the gain or loss will be long-term. You do not file a gift tax return because the current value is less than the annual exclusion amount, and when I sell for 14k, I ow capital gains taxes on 4k (i.e., 14k sales proceeds less 10k basis [ignoring trasnaction costs]).

Now, same assumption, you bought 10k of stock 2 years ago. On the day you gift me the stock, it is worth only 8k. When I sell the gain or loss will be long-term. You do not file a gift tax return because the current value is less than the annual exclusion amount. Assume I sell the next day for 8k. I realize no loss because 8k sales proceeds less 8k basis (value on day of transfer) equals zero. Instead, less us say that I sell in 1 year for kk. No loss, becaue 9k - 8k is positive, but no gain either because 9k - 10k you spent to acqurie is sill negative.

"Now. . . dividends . . which were cash deposits into the acct - no dividends used to repurchase stock."

I assume that each you was paying income tax on your share of dividends each year.

"I doubt there is more than $2k of dividends in the account, perhaps I can just gift it all to my sister"

Your sister already owns 1/2 the dividends, why would you gift her her own money?

Keep reading and aksing questions.

Regards, JAFO

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120444 of 121219
Subject: Re: how to split a joint account Date: 3/13/2014 7:35 PM
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Thanks so much to all for taking the time to reply. I really appreciate your help!

So - first to recap and clarify: The acct was opened with $24k cash - half mine half sis. $$ were invested in various stocks. No stocks were sold, and no dividends reinvested - but we'll worry about dividends later.

So . . my sister can take all shares of stock whose cost basis totals $12k (original amt) and transfer to her own acct - no questions asked. I can gift all of my shares of stock at once, 'cuz the original cost basis is $12k - less than current $14k max, and we can be done with the whole thing!


No! As I said when I posted, you got a lot of misinformation in the early replies. Your sister can take one half of the current value of the account since she contributed 1/2 of the opening capital. Half of the stocks and half of the dividends belong to her. Each of you should have been reporting 1/2 of the income each year on your personal tax returns. If the income was reported to you (your SSN primary on the account), you should have issued a nominee 1099 to your sister, or as I usually tell my clients, just enter the nominee information as "received as nominee for [name] [SSN]" and enter a negative amount on Schedule B.

Now, do I need to file any paperwork with anybody about gifting my $12k shares of stock? (aside from giving my sister the purchase paperwork).

If your gift is worth more than $14K (current value), then you must file Form 709, a gift tax return. If it's less than $14K, no paperwork needs to be filed with the IRS.

OK - this got tricky: Ira said: "Hondochica needs to know the cost basis of the stocks transferred to sister because sister will use that cost basis and holding period to determine any gain if she sells the stock. She will use the market value on the date of the gift to determine any loss if she sells the stock." OK - I can't quite figure out what you're saying here. And I wrote this long attempt to clarify, and then googled 'gifted stock basis' and discovered . . I don't want to tackle this now. It doesn't matter. I have the original purchase paperwork and will deal with it later!! so . .. nevermind! ;-))))

I took a shortcut. Just make sure she knows the purchase price and the current value of any stocks that you transfer to her from your half of the account.

Now. . . dividends . . which were cash deposits into the acct - no dividends used to repurchase stock. I doubt there is more than $2k of dividends in the account, perhaps I can just gift it all to my sister and still remain below the $14k for this year. OR do I have to figure out what dividends go with what shares when we 'split' the acct?

Money is money. She is entitled to 1/2 of the dividends because she is half-owner of the account. The other half will be included in your gift to her. Cost basis and market value of cash is the same. A dollar is a dollar.

thanks - I hope I have not further complicated this.

You have, because of the misinformation you were given.

Ira

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Author: hondochica Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120445 of 121219
Subject: Re: how to split a joint account Date: 3/13/2014 11:39 PM
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wow! OK . .

JAFO: Thanks - I see where Ira took the 'shortcut' he refers to. Clear as mud!! (tee hee! got it) Thanks!!!

Ira: yes, I was mixing info from dual posts w/o realizing. "You have, because of the misinformation you were given." (I don't know how you italicize this like a quote) . . . LOL!!! I love bluntness!! I'm crackin' up here!! ;-)))))))))

OK - let's see if I can muddle this one more time! (ya' know - on many other topics I'm a somewhat intelligent person! This just befuddles me for some reason). So Sis is going to open a new separate acct; she will take 1/2 of the then current value of the joint acct - in whatever stocks - doesn't matter. And 1/2 of the accumulated dividends, and 1/2 of initial remaining uninvested cash. So if tomorrow the acct was worth $40k - she would take 1/2 dividends and 1/2 remaining initial cash, and then stocks, all totaling $20k. Since my half is now worth more than $14k, I'll gift her $14k this year; and the remainder next year.

And when my sister ever gets around to selling any of those stocks (which I would actually do for her cuz' she has no idea what I'm doing!) then I'll be back on these boards, or someplace trying to figure out the gains/losses etc.

Now that I've gone through all this . . . would it just be easier to leave the acct alone and we could deal with all of this some time in the future depending on who needs what and who outlives who! We'll name each other as beneficiaries TOD; and simplify things? The money is for our retirements - neither of us needs it now.

I had no idea this would be so complicated! All 'cuz I wanted the cash to earn $$ and not just sit doing nothing. that'll teach me!

Btw: (shhhhh!) I've just been claiming the dividends on my taxes cuz' they just haven't been that much - maybe a couple hundred a year, and it's only been 3 years and . . . it was easier! Don't tell Big Brother!

Thanks again!! Really appreciate your time

Kelly

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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 120446 of 121219
Subject: Re: how to split a joint account Date: 3/14/2014 12:01 AM
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Now that I've gone through all this . . . would it just be easier to leave the acct alone and we could deal with all of this some time in the future depending on who needs what and who outlives who

It isn't that complicated. Since no dividends were reinvested, you just need to find a statement with the stock purchases.

Transfer slightly less than half the account + 14K. After the end of year transfer the rest.

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