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Author: Selphiras Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: joint accounts and taxes Date: 6/19/2003 3:28 PM
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If my Mother-in-Law (MIL) and my husband (DH) set up a joint savings account, will either of the following be applicable?

* Will money deposited in the account by MIL be considered a gift to DH? (i.e, subject to the $10000 allowed before gift taxes take effect) Only MIL/FIL will be putting money in the account.
* Will DH owe income tax on the interest/dividends? The account and MIL are located in another state. MIL intends to receive the statements and pay applicable taxes. But would we need to pay our state taxes on it? What if DH's address is simply listed as MIL?

(In case you are wondering *why* an account like this? MIL hopes to adopt a daughter soon. DH and I will become her guardians should MIL and FIL die. The money is intended to provide for her care later in life (she has sever special needs). Eventually, a trust fund will be set up. But in the meantime, it will just be a savings account. They'd like DH to have immediate access to the money should anything happen.)

Thank you,
Selphiras
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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: 65926 of 121219
Subject: Re: joint accounts and taxes Date: 6/19/2003 4:22 PM
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Joint trust is not the only way to title accounts. POD (paid on death) might work in your case and avoid the gift reporting issues. Given the responsibilities they are assuming they will need a lawyer. Before the adoption while they have time, they should do estate planning. A living trust for themselves with a special needs trust as beneficiary maybe an option. You husband could be successor trustee to give him immediate control when needed.

With 4 people involved and your husband receiving 50% ownership, the amount maybe $88,000 before exceeding cummulative annual limit. $11,000 to each of you from your MIL and FIL which would be $44,000. Gift tax reporting would still be required. The other problem with this is that then some or all of the money would be transferred to the trust which again could trigger gift tax issues.

Interest/dividends statements are reported to the primary social security number on the account.

Debra



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Author: RoseSmeller One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 65931 of 121219
Subject: Re: joint accounts and taxes Date: 6/20/2003 2:29 PM
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You might want to post this question on the Inheritance Strategies board for a better explanation of the rules. But I believe the quick answer is No. Your in-laws depositing money in a joint account would not be a gift unless your husband actually withdraws the money. As long as only they make deposits and withdrawals, the money is theirs for purposes of paying tax on the interest, and it's part of their estate when they die.


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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: 65932 of 121219
Subject: Re: joint accounts and taxes Date: 6/20/2003 3:27 PM
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You might want to post this question on the Inheritance Strategies board for a better explanation of the rules. But I believe the quick answer is No. Your in-laws depositing money in a joint account would not be a gift unless your husband actually withdraws the money. As long as only they make deposits and withdrawals, the money is theirs for purposes of paying tax on the interest, and it's part of their estate when they die.

It all depends on the state. I seem to recall reading somewhere that NY may consider the gift to have been made as soon as the additional name is placed on the account even if the son never withdraws a dime.

Ira


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