Gift Tax on deceased mother's account

[clay]

Client has 4 brothers.

Mom passes away in January. Mom has $150,000 in joint bank accounts that lists her name along with the names of client and one other son. Also has an irrevocable trust with the only asset being a house that was sold this year.

Client wants to distribute the cash from the bank accounts. Brother wants to limit the distribution to the limit before gift tax kicks in. Brother is concerned about gift tax because he says that once mom died, the funds are in his name and the client's.

Mom had a will but bank accounts are not mentioned. The will simply states that assets be distributed equally.

Is the gift limit a concern in this case?

[Don in Upstate NY]

Client has 4 brothers.

Mom passes away in January. Mom has $150,000 in joint bank accounts that lists her name along with the names of client and one other son. Also has an irrevocable trust with the only asset being a house that was sold this year.

Client wants to distribute the cash from the bank accounts. Brother wants to limit the distribution to the limit before gift tax kicks in. Brother is concerned about gift tax because he says that once mom died, the funds are in his name and the client's.

Mom had a will but bank accounts are not mentioned. The will simply states that assets be distributed equally.

Is the gift limit a concern in this case?

At this point we have two brothers with $75K each and two with nothing. We want everyone to end up with $37.5K. Each of the $75K brothers can give $12K to each of the 'nothing' brothers without filing any gift tax returns. If they wanted to wait until next January to give the rest, that would work. Or if some of the brothers are married, it probably could all be done this year.

It doesn't matter that the will doesn't mention the bank account - money in a joint bank account passes by action of law irrespective of what the will might say.

[Gail in Virginia]

Client has 4 brothers.

Mom passes away in January. Mom has $150,000 in joint bank accounts that lists her name along with the names of client and one other son. Also has an irrevocable trust with the only asset being a house that was sold this year.

Client wants to distribute the cash from the bank accounts. Brother wants to limit the distribution to the limit before gift tax kicks in. Brother is concerned about gift tax because he says that once mom died, the funds are in his name and the client's.

Mom had a will but bank accounts are not mentioned. The will simply states that assets be distributed equally.

Is the gift limit a concern in this case?

I don't think the gift limit is a problem since the unified credit is well over $150K, but it might depend on the value of the house being sold. Also, a gift tax return might have been required when the money was put in joint name but more likely would be required if the cash is distributed to the brothers on the bank account because they would then have sole control of the money.

[Pacun]

Your main concern here would be the FMV of the house at the time of death. If it was sold to a non related party then the selling price will be enough since the property was sold before the 6 months alternate valuation kicked in.

[joanmcq]

I'm assuming they ( the brothers who were on the account) are concerned about their gift limitations, not the mother's. The money is now theirs. As I just went through this with my sister and brothers, yes , they each can gift $12,000 per year to limit gift tax exposure, and if spouses are involved, more can be gifted. Without involving spouses, each brother who was not on the account can get $24,000 this year, and the rest in 2008. However, if, for example, the brothers with the money are gifting to spouses of the brothers with out, the money would technically become the spouse's, not the intended brothers. At least when I went through this, it was december, so my brothers only had to wait until January for the rest.

[zeke]

I'm assuming they ( the brothers who were on the account) are concerned about their gift limitations, not the mother's. The money is now theirs. As I just went through this with my sister and brothers, yes , they each can gift $12,000 per year to limit gift tax exposure, and if spouses are involved, more can be gifted. Without involving spouses, each brother who was not on the account can get $24,000 this year, and the rest in 2008. However, if, for example, the brothers with the money are gifting to spouses of the brothers with out, the money would technically become the spouse's, not the intended brothers. At least when I went through this, it was december, so my brothers only had to wait until January for the rest.

Then again, if the gifting brother is married as well, you can give twice as much!

[Pacun]

I think you are forgetting something important... Dead people do not give gifts.

[OldJack]

I think you are forgetting something important... Dead people do not give gifts.

I think you are missing the point Pacun. Mother is not gifting anything as when she died the joint bank account is owned 100% by the 2 brothers that are then making a gift to the other brothers not on the bank account.

[Pacun]

I thought the whole thing was inheritance... but I guess you are right.

[jainen]

>>the joint bank account is owned 100% by the 2 brothers<<

No it isn't. They all agree that it is part of the estate to be distributed equally according to the will. The fact that there are some nominees on the title doesn't change that fact. Split up the house sale proceeds unevenly to compensate for the bank accounts if that is easier.

[Don in Upstate NY]

>>the joint bank account is owned 100% by the 2 brothers<<

No it isn't. They all agree that it is part of the estate to be distributed equally according to the will. The fact that there are some nominees on the title doesn't change that fact. Split up the house sale proceeds unevenly to compensate for the bank accounts if that is easier.

Legally, it doesn't matter what that all agree on. The executor and the trustee must follow the written instructions of the will and the trust.

According to the original post, the house was in a trust. The proceeds from the sale of the house must be distributed according to the terms of that trust, which were not disclosed. We could speculate that the trust was simply an effort to avoid probate, and the beneficiaries are the sons, but we don't know.

The bank account was in the names of the mother and two sons. Again, this sounds like a probate-avoidance tactic. Why not all four sons -- who knows. In any case, at this point that money belongs to the two named brothers.

There is a will that says all assets must be divided equally, but we know of no assets subject to that will.

The brothers want everyone to come out even for personal, ethical, moral, or family reasons. That's not the way it was set up legally, so the only option (short of everyone disclaiming everything and throwing it all back into the probate estate) is gifts among the brothers.

[kcjenkins]

Actually, it depends on two things. One is state law, which may include the bank accounts in the estate, or might not. And second, it depends on the paperwork at the bank. If the brothers were on the account as owners of the account in a Joint Account With Right of Survivorship [JWRS account] then they do own the bank account. If they were just on the account as a convenience, then they do not own it.

Let me give you an example. If you work for ABC Corp, as the manager of the local ABC store, you may be on the company bank account, but not be an owner. Or if you work for Joe's QuickStop, a Sch C business, and are on the checking account because you manage the store and need to be able to pay for deliveries, etc, you don't own that account, and if the owner of the account dies, you do not get the money.

The account will generally be controlled by the account card, contract, etc., entered into with the bank at the time the account was opened. Under state law the bank is insulated/protected from any liability to the estate of the deceased owner, for paying out the funds to the other/surviving person named on the account. However, depending upon your particular fact situation, the estate of the deceased account owner may have a right of recovery, IF the deceased would have had such a right during her lifetime, such as where the deceased had placed ALL the funds into that account, and by adding the name of the other family member only intended them to have access in the event of an emergency or incapacity -- not intending any gift of the funds, not during their lifetime, nor upon death.

Generally, such an account will/should have been designated as a "right of survivorship" account if such "gift" after death was intended. And if so, then the surviving name on the account owns the funds outright and the estate has no interest in the monies. So you need to have the sons check with the bank as to whether it is an account with 'right of survivorship' or not.