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Author: FoolMeOnce 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: Tax Quandry Date: 2/8/2011 7:49 PM
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In Virginia, a person dies with a CD that is titled in his name but held jointly with his two sons.

As a jointly held account it is not part of the decedent's probate estate. The sons leave the CD alone until the next year when it matures, at which time they divide the proceeds.

In year 1 the CD pays pays and compounds interest after the decedent's death in September. In year two it continues to compound interest until it matures in July.

Question: Who pays taxes on the interest in each year? In the first year the bank holding the certificate sent the 1099-INT to the decedent even though it reflected interest earned after his death.

Thanks.
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112163 of 121219
Subject: Re: Tax Quandry Date: 2/8/2011 7:57 PM
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In Virginia, a person dies with a CD that is titled in his name but held jointly with his two sons.

That's impossible even in Virginia. It's either held jointly by the three of them or it's held solely by him and payable on his death to the sons. On the good news front, it doesn't matter for tax purposes. What matters there is whose money it is, and I assume it's Dad's.

As a jointly held account it is not part of the decedent's probate estate. The sons leave the CD alone until the next year when it matures, at which time they divide the proceeds.

See Publication 550 for how to divide the interest among the decedent, the estate (sounds like none in this case), and the heirs.

Phil
Rule Your Retirement Home Fool

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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112164 of 121219
Subject: Re: Tax Quandry Date: 2/8/2011 8:11 PM
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Yes, it was definitely Dad's money until he died in September 2010. If it is now payable to the remaining joint owners, why wouldn't the bank issue the 1099s to them?

It appears that the 1099 in 2011 will be issued to someone who died the year before. Can someone who has been dead all year have tax liability?

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112165 of 121219
Subject: Re: Tax Quandry Date: 2/8/2011 8:28 PM
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Yes, it was definitely Dad's money until he died in September 2010. If it is now payable to the remaining joint owners, why wouldn't the bank issue the 1099s to them?

I take it you've not yet had a chance to review Pub 550.

It appears that the 1099 in 2011 will be issued to someone who died the year before.

Only if you continue to assume the bank's psychic will figure things out without assistance from you. Someone needs to stop by the bank with a certified copy of the death certificate and get the number changed. I'd suggest just sending them a new W-9, but with a bank I think it's always a good idea to have a human involved at the start.

Phil
Rule Your Retirement Home Fool

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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112166 of 121219
Subject: Re: Tax Quandry Date: 2/8/2011 8:53 PM
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I take it you've not yet had a chance to review Pub 550.

I looked at it. Didn't see anything remotely on point.

Only if you continue to assume the bank's psychic will figure things out without assistance from you. Someone needs to stop by the bank with a certified copy of the death certificate and get the number changed. I'd suggest just sending them a new W-9, but with a bank I think it's always a good idea to have a human involved at the start.

I discussed at length with my Dad's personal banker (small town). I was told that Dad would get the 1099 because he is still listed as the primary owner of the CD. Doesn't make much sense to me but they would not be deterred. Seems more appropriate that each of the joiners would have to declare a prorata portion of the interest earnings.

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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: 112167 of 121219
Subject: Re: Tax Quandry Date: 2/8/2011 9:10 PM
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FoolMeOnce:

Phil: <<<Only if you continue to assume the bank's psychic will figure things out without assistance from you. Someone needs to stop by the bank with a certified copy of the death certificate and get the number changed. I'd suggest just sending them a new W-9, but with a bank I think it's always a good idea to have a human involved at the start.>>>

"I discussed at length with my Dad's personal banker (small town). I was told that Dad would get the 1099 because he is still listed as the primary owner of the CD."

Take Phil's advice. Even in a small town, and dealing with a personal banker (who actually knew your father), I seriously doubt that the bank will retitle the CD without the legal requirements being satisfied.

"Doesn't make much sense to me but they would not be deterred."

Probably because they have not received the death certificate and a formal request (in writing) to retitle.

"Seems more appropriate that each of the joiners would have to declare a prorata portion of the interest earnings."

Some estates stay open for significant periods after the death of the deceased.

Regards, JAFO

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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112168 of 121219
Subject: Re: Tax Quandry Date: 2/8/2011 9:34 PM
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Well . . . . .the bank got a death certificate. They requested that to disburse the other CDs which were POD. Question is . . . should I expect them to re-title the problem CD retroactively, withdraw the incorrect 1099 and produce two new 1099's prorating the interest among the heirs? Somehow, it doesn't seem likely. And if not, how do I treat the interest income already earned since my father died? Thanks.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112169 of 121219
Subject: Re: Tax Quandry Date: 2/8/2011 9:55 PM
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The bank isn't going to reissue the 1099s. So don't waste time banging your head against that wall. But that doesn't matter. 1099s are for the IRS's information, not yours.

The IRS computers will try to match the 1099 up to your dad's return. For the year of his death, report the whole amount on his schedule B, then subtract off the amount the heirs will report. For years after his death, just split the interest between the heirs. They won't have any problem reporting more interest than the IRS has on record. You only have a problem if you report less.

--Peter

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112170 of 121219
Subject: Re: Tax Quandry Date: 2/8/2011 10:21 PM
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I looked at [Pub 550]. Didn't see anything remotely on point.

Sorry, it's in 559. But like Peter and I both said, ignore the corrected 1099 part.

Phil
Rule Your Retirement Home Fool

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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112179 of 121219
Subject: Re: Tax Quandry Date: 2/9/2011 7:13 AM
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Thanks everyone. As executor, I will make the adjustment as a nominee distribution on my father's last tax return and notify the heirs of amounts to include as nominee interest on their returns.

Next year, my father won't meet the filing threshold so the main requirement will be for the heirs to claim the interest.

Now finally . . . . as executor, do I need to file 1099-INts for the nominee interest?

Thanks,
FMO

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112184 of 121219
Subject: Re: Tax Quandry Date: 2/9/2011 11:29 AM
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Next year, my father won't meet the filing threshold

Just to be technically correct, you can't file a return for anyone after the year in which they die. The final return for an individual is for the year of their death.

Anything after that is some entity other than an individual, most commonly a trust or estate, both of which file on form 1041.

--Peter

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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: 112185 of 121219
Subject: Re: Tax Quandry Date: 2/9/2011 11:41 AM
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withdraw the incorrect 1099 and produce two new 1099's prorating the interest among the heirs?

It is not an incorrect 1099. Just follow Phil's and Peter's advice, it works.

Banks issue 1099s to the primary account holder's SSN, they don't prorate the amount amount the account owners. Reallocating of interest does work as along as the tax returns agree.

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112186 of 121219
Subject: Re: Tax Quandry Date: 2/9/2011 11:52 AM
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Now finally . . . . as executor, do I need to file 1099-INts for the nominee interest?


Whoops. Forgot to address your actual question.

Technically, yes. The IRS would really like you to do that.

Practically - I've done nominee 1099s only on rare occasions. As long as I know all of the interest is reported on someone's returns, I figure the government hasn't been harmed, and has arguably been helped by not having to process additional 1099s.

Of course, most of the time I'm dealing with two to sometimes three digit numbers. If we are talking about thousands of dollars in nominee interest, I'd probably prepare the nominee 1099s.

--Peter

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Author: foolazis Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 112195 of 121219
Subject: Re: Tax Quandry Date: 2/10/2011 2:06 PM
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Some estates stay open for significant periods after the death of the deceased.

My Dad's estate has been open for 10 years. It is remaining open just in case he receives something from a class action lawsuit.

foolazis

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