Gift Tax and IRS Form 709

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bpg1234
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Gift Tax and IRS Form 709

Post by bpg1234 »

DW had a joint savings account with her father with a sum of money deposited from the sale of his residence and targeted to be used for his private pay Assisted Living/LTC facility costs, as well as funeral, taxes, etc. expenses upon his passing. Sad to say he passed much sooner than expected and now DW is the sole owner of the account with remaining funds ultimately needing to be equally divided between all four siblings.

My take is that these cash transfers/distributions to DW three siblings will be considered gifts as DW is the owner of the account and being that they will be a lot higher than the $15,000 annual exclusion limit will require DW filling out and submitting IRS Form 709 by the April 15, 2022 tax deadline. Before moving forward I would like to ensure we're not missing anything and there are no other options. Thanks in advance for any thoughts.
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David Jay
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Re: Gift Tax and IRS Form 709

Post by David Jay »

Are the other siblings married? She can gift $30,000 total to sibling + spouse. She can do this in 2021 and 2022. So $60,000 each by the first week of January without affecting your future estate taxation.

Even if the amount is far more than $60,000 I would still do the 15K/30K in 2021 (without 709s) and then only file the 709 for the remainder in 2022.
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Gill
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Re: Gift Tax and IRS Form 709

Post by Gill »

I would take the position DW was only a joint owner for convenience purposes and now holds the proceeds as constructive trustee for her siblings. Her distributions to her siblings are only settling the estate and completing her duty as constructive trustee and therefore do not constitute gifts.
Gill
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TomatoTomahto
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Re: Gift Tax and IRS Form 709

Post by TomatoTomahto »

Gill wrote: Mon Nov 29, 2021 6:01 am I would take the position DW was only a joint owner for convenience purposes and now holds the proceeds as constructive trustee for her siblings. Her distributions to her siblings are only settling the estate and completing her duty as constructive trustee and therefore do not constitute gifts.
Gill
Different circumstances but similar outcome: we recently were wrestling with gift reporting and BHs came through with a reframing: we had in fact been acting as trustees of an “informal trust” which was no longer necessary, so could with a clear conscience and reporting position transfer assets in kind with no gift reporting.

Shoutout to Gill and other knowledgeable posters who keep us amateurs from getting all tangled up in trying to do the right thing.
I get the FI part but not the RE part of FIRE.
fourwheelcycle
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Re: Gift Tax and IRS Form 709

Post by fourwheelcycle »

Gill wrote: Mon Nov 29, 2021 6:01 am I would take the position DW was only a joint owner for convenience purposes and now holds the proceeds as constructive trustee for her siblings. Her distributions to her siblings are only settling the estate and completing her duty as constructive trustee and therefore do not constitute gifts.
Gill
Interesting comment from Gill. I manage all of my father's finances and I am the executor for his will. He has sold his house and now lives in a memory care unit. In order to avoid the need to travel to his distant state for probate, I have set up most of his savings in a brokerage account at Vanguard, with each of his children as equal share TOD beneficiaries. In order to pay his final taxes and other expenses, I also set up a joint account with my father as the primary owner and me as secondary. All of the funds are in the money market settlement account, and I was careful to limit the total to less than $15K times the number of siblings.
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bpg1234
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

Thanks everyone for your valuable insights. DW is somewhat reluctant to transfer gift money to sibling's spouses in concern if something were ever to happen in their respective marriages that sibling's spouses may be able to claim that the gift was intended for them and rightfully theirs.

As for Gill's comment this is indeed of interest as clearly DW would prefer to avoid the gift and IRS 709 form route and this rationale that he provided indeed is the reality of the cash distributions.

With this tact does anything need to be done after DW transfer of funds or do we only need to present this position if ever contacted by the IRS? DW was POA and is Executor of the Estate. Thanks once again for everyone's input to date.
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Re: Gift Tax and IRS Form 709

Post by CZjc1330 »

I think it is cleaner, clearer to address the issue as an inheritance -- as already suggested.

But if you go the Gift way be aware that the 15 K exception goes to 16 K in 2022.
So,15K can be gifted before the end of Dec. and 16 K in Jan.
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Re: Gift Tax and IRS Form 709

Post by Gill »

bpg1234 wrote: Mon Nov 29, 2021 9:45 am Thanks everyone for your valuable insights. DW is somewhat reluctant to transfer gift money to sibling's spouses in concern if something were ever to happen in their respective marriages that sibling's spouses may be able to claim that the gift was intended for them and rightfully theirs.

As for Gill's comment this is indeed of interest as clearly DW would prefer to avoid the gift and IRS 709 form route and this rationale that he provided indeed is the reality of the cash distributions.

With this tact does anything need to be done after DW transfer of funds or do we only need to present this position if ever contacted by the IRS? DW was POA and is Executor of the Estate. Thanks once again for everyone's input to date.
I completely agree with not transferring to spouses. Im always troubled when I see this advice given and it is clearly inappropriate in an inheritance situation.

The only thing i might do with my suggested approach is to document the legal theory by putting a memo in the estate file. Im confident you wont hear anything further.

Gill
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bpg1234
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

Gill wrote: Mon Nov 29, 2021 10:08 am
bpg1234 wrote: Mon Nov 29, 2021 9:45 am Thanks everyone for your valuable insights. DW is somewhat reluctant to transfer gift money to sibling's spouses in concern if something were ever to happen in their respective marriages that sibling's spouses may be able to claim that the gift was intended for them and rightfully theirs.

As for Gill's comment this is indeed of interest as clearly DW would prefer to avoid the gift and IRS 709 form route and this rationale that he provided indeed is the reality of the cash distributions.

With this tact does anything need to be done after DW transfer of funds or do we only need to present this position if ever contacted by the IRS? DW was POA and is Executor of the Estate. Thanks once again for everyone's input to date.
I completely agree with not transferring to spouses. Im always troubled when I see this advice given and it is clearly inappropriate in an inheritance situation.

The only thing i might do with my suggested approach is to document the legal theory by putting a memo in the estate file. Im confident you wont hear anything further.

Gill
Thanks Gill for this. I will need to read up further on constructive trustee.
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Re: Gift Tax and IRS Form 709

Post by lstone19 »

Thanks to Gill as well as I was not aware that ("constructive trustee") was a way you could look at a joint account owner. My wife, as trustee and executor for her late's mother, had to deal with this although in amounts small enough to not raise any gift tax questions. My wife's family has this penchant for having a joint owner on every account an unmarried family member holds (their thinking is "who will pay you bills if you're in a hospital in a coma?" My thought is in that case, paying your bills is way down your priority list). In the case of her late mother, it was a sibling who was joint owner with her mother and my wife's biggest concern was that the sibling would try to claim it was her money. Fortunately, she didn't and we only talking a four-figure amount anyway (but this is a sister who was 100% life insurance beneficiary for a deceased sibling with the understanding that said unmarried and childless sister would distribute it to her nieces and nephews (all now adults). And here we are 10 years later and she continues to distribute it in $50 to $100 amounts twice a year (birthdays and Christmas)).
delamer
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Re: Gift Tax and IRS Form 709

Post by delamer »

TomatoTomahto wrote: Mon Nov 29, 2021 6:20 am
Gill wrote: Mon Nov 29, 2021 6:01 am I would take the position DW was only a joint owner for convenience purposes and now holds the proceeds as constructive trustee for her siblings. Her distributions to her siblings are only settling the estate and completing her duty as constructive trustee and therefore do not constitute gifts.
Gill
Different circumstances but similar outcome: we recently were wrestling with gift reporting and BHs came through with a reframing: we had in fact been acting as trustees of an “informal trust” which was no longer necessary, so could with a clear conscience and reporting position transfer assets in kind with no gift reporting.

Shoutout to Gill and other knowledgeable posters who keep us amateurs from getting all tangled up in trying to do the right thing.
Could you provide a link to the thread that discusses informal trusts?

My search wasn’t successful.

Thank you.

EDIT: Or is this it: viewtopic.php?t=354877
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Gill
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Re: Gift Tax and IRS Form 709

Post by Gill »

The definition of a constructive trust varies but here’s one:

A Constructive Trust is an equitable remedy and is created when a court, through the application of legal fiction, deems property formerly held by one who wrongfully obtained the property, to be held in trust for the one to who the property justly belongs to be the beneficiary of the Trust. Unlike other Trusts, a Constructive Trust is not predicated upon the party’s intent. It is an equitable remedy and a tool used by courts to prevent someone from being unjustly enriched at the expense of an innocent victim.

Gill
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TomatoTomahto
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Re: Gift Tax and IRS Form 709

Post by TomatoTomahto »

delamer wrote: Mon Nov 29, 2021 4:06 pm
TomatoTomahto wrote: Mon Nov 29, 2021 6:20 am
Gill wrote: Mon Nov 29, 2021 6:01 am I would take the position DW was only a joint owner for convenience purposes and now holds the proceeds as constructive trustee for her siblings. Her distributions to her siblings are only settling the estate and completing her duty as constructive trustee and therefore do not constitute gifts.
Gill
Different circumstances but similar outcome: we recently were wrestling with gift reporting and BHs came through with a reframing: we had in fact been acting as trustees of an “informal trust” which was no longer necessary, so could with a clear conscience and reporting position transfer assets in kind with no gift reporting.

Shoutout to Gill and other knowledgeable posters who keep us amateurs from getting all tangled up in trying to do the right thing.
Could you provide a link to the thread that discusses informal trusts?

My search wasn’t successful.

Thank you.

EDIT: Or is this it: viewtopic.php?t=354877
Yes, that’s the one. We gave the assets in kind and never worried about it again.
I get the FI part but not the RE part of FIRE.
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WoodSpinner
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Re: Gift Tax and IRS Form 709

Post by WoodSpinner »

OP,

FWIW, form 709 isn’t that difficult to fill out — although I managed to screw it up and fortunately the BHs helped me out. Now that I have a sample, it’s much easier to file as we continue gifting.

Best of luck

WoodSpinner
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bpg1234
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

Gill wrote: Mon Nov 29, 2021 4:49 pm The definition of a constructive trust varies but here’s one:

A Constructive Trust is an equitable remedy and is created when a court, through the application of legal fiction, deems property formerly held by one who wrongfully obtained the property, to be held in trust for the one to who the property justly belongs to be the beneficiary of the Trust. Unlike other Trusts, a Constructive Trust is not predicated upon the party’s intent. It is an equitable remedy and a tool used by courts to prevent someone from being unjustly enriched at the expense of an innocent victim.

Gill
Thanks for the definition Gill. I found something as well which I readily can relate to in DW's specific case:

"If someone has possession of property (money, real estate, or other assets) that they should not have because they obtained it unfairly through fraud or breach of a fiduciary duty, this is unjust enrichment. The constructive trust is set up to solve the unfair situation that has happened".

I see that DW's siblings could easily contrue a breach of fiduciary duty with unjust enrichment if DW were ever to indicate the remaining account balance (of the prior joint account) now belonged to her upon the father's passing since she now is the sole owner of the account, especially when the father's Will clearly indicated all assets are to be divided equally, and all accounts that bypass the Will through POD beneficiaries (e.g. annuities, etc.) had all four siblings equally listed.

As such, it appears to be relatively straightforward that DW is acting in her Executor duty to solve the issue of unjust enrichment by making equal distributions of the remaining account balance between all four of them as part of their inheritances in settling the estate and therefore are not considered gifts.
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Re: Gift Tax and IRS Form 709

Post by Gill »

bpg1234 wrote: Mon Nov 29, 2021 8:23 pm
Gill wrote: Mon Nov 29, 2021 4:49 pm The definition of a constructive trust varies but here’s one:

A Constructive Trust is an equitable remedy and is created when a court, through the application of legal fiction, deems property formerly held by one who wrongfully obtained the property, to be held in trust for the one to who the property justly belongs to be the beneficiary of the Trust. Unlike other Trusts, a Constructive Trust is not predicated upon the party’s intent. It is an equitable remedy and a tool used by courts to prevent someone from being unjustly enriched at the expense of an innocent victim.

Gill
Thanks for the definition Gill. I found something as well which I readily can relate to in DW's specific case:

"If someone has possession of property (money, real estate, or other assets) that they should not have because they obtained it unfairly through fraud or breach of a fiduciary duty, this is unjust enrichment. The constructive trust is set up to solve the unfair situation that has happened".

I see that DW's siblings could easily contrue a breach of fiduciary duty with unjust enrichment if DW were ever to indicate the remaining account balance (of the prior joint account) now belonged to her upon the father's passing since she now is the sole owner of the account, especially when the father's Will clearly indicated all assets are to be divided equally, and all accounts that bypass the Will through POD beneficiaries (e.g. annuities, etc.) had all four siblings equally listed.

As such, it appears to be relatively straightforward that DW is acting in her Executor duty to solve the issue of unjust enrichment by making equal distributions of the remaining account balance between all four of them as part of their inheritances in settling the estate and therefore are not considered gifts.
Your definition was better than the one I posted. I feel completely comfortable you are not dealing in a gift situation.
Gill
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bpg1234
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

Gill wrote: Tue Nov 30, 2021 5:10 am
bpg1234 wrote: Mon Nov 29, 2021 8:23 pm
Gill wrote: Mon Nov 29, 2021 4:49 pm The definition of a constructive trust varies but here’s one:

A Constructive Trust is an equitable remedy and is created when a court, through the application of legal fiction, deems property formerly held by one who wrongfully obtained the property, to be held in trust for the one to who the property justly belongs to be the beneficiary of the Trust. Unlike other Trusts, a Constructive Trust is not predicated upon the party’s intent. It is an equitable remedy and a tool used by courts to prevent someone from being unjustly enriched at the expense of an innocent victim.

Gill
Thanks for the definition Gill. I found something as well which I readily can relate to in DW's specific case:

"If someone has possession of property (money, real estate, or other assets) that they should not have because they obtained it unfairly through fraud or breach of a fiduciary duty, this is unjust enrichment. The constructive trust is set up to solve the unfair situation that has happened".

I see that DW's siblings could easily contrue a breach of fiduciary duty with unjust enrichment if DW were ever to indicate the remaining account balance (of the prior joint account) now belonged to her upon the father's passing since she now is the sole owner of the account, especially when the father's Will clearly indicated all assets are to be divided equally, and all accounts that bypass the Will through POD beneficiaries (e.g. annuities, etc.) had all four siblings equally listed.

As such, it appears to be relatively straightforward that DW is acting in her Executor duty to solve the issue of unjust enrichment by making equal distributions of the remaining account balance between all four of them as part of their inheritances in settling the estate and therefore are not considered gifts.
Your definition was better than the one I posted. I feel completely comfortable you are not dealing in a gift situation.
Gill
Op follow-up on this. Thanks again in advance for any perspectives.

We went to my father-in-laws Estate Attorney and this joint account topic was discussed. The Estate Attorney's perspective was that since the joint accounts were considered convenience accounts then DW can transfer the money from the accounts into the estate account and then it would be equally distributed as part of the Will and probate process.

We mentioned the gift approach with the IRS Form 709 which she said is an option but with the constructive trust approach she had some concern over potential IRS questions with no documentation. In both cases she indicated there could be even some potential sibling issues on the amount that was distributed.

Her recommendation in depositing the monies directly in the estate account with the full accounting of what goes in and out for all to see with the final signoff of the amount by all the inheritees before receiving their share would be the best approach from an all-parties-invovled perspective.

It just seems a bit counter-intuitive to me to take monies that are legally outside of the will/probate process and then depositing it into the estate account to be held up by that process and potential unforeseen hiccups versus the gift approach with IRS Form 709 or the constructive trust potential surfaced by Gill. Any addional thoughts on this would be very much appreciated.
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bpg1234
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

Any thoughts on this from the afternoon BH crowd?
Thanks again.
bsteiner
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Re: Gift Tax and IRS Form 709

Post by bsteiner »

bpg1234 wrote: Sun Dec 12, 2021 9:32 am ...
We went to my father-in-laws Estate Attorney and this joint account topic was discussed. The Estate Attorney's perspective was that since the joint accounts were considered convenience accounts then DW can transfer the money from the accounts into the estate account and then it would be equally distributed as part of the Will and probate process.

We mentioned the gift approach with the IRS Form 709 which she said is an option but with the constructive trust approach she had some concern over potential IRS questions with no documentation. In both cases she indicated there could be even some potential sibling issues on the amount that was distributed.

Her recommendation in depositing the monies directly in the estate account with the full accounting of what goes in and out for all to see with the final signoff of the amount by all the inheritees before receiving their share would be the best approach from an all-parties-invovled perspective.

It just seems a bit counter-intuitive to me to take monies that are legally outside of the will/probate process and then depositing it into the estate account to be held up by that process and potential unforeseen hiccups versus the gift approach with IRS Form 709 or the constructive trust potential surfaced by Gill. Any additonal thoughts on this would be very much appreciated.
That's correct. If she's conceding that it was for convenience, it becomes an estate asset. Alternatively she could say it's hers, in which case her siblings could claim that it was for convenience.

Including it in the estate won't necessarily hold anything up except that it's often more convenient to distribute everything at the end if no one has any immediate need for money.
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bpg1234
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

bsteiner wrote: Sun Dec 12, 2021 1:38 pm
bpg1234 wrote: Sun Dec 12, 2021 9:32 am ...
We went to my father-in-laws Estate Attorney and this joint account topic was discussed. The Estate Attorney's perspective was that since the joint accounts were considered convenience accounts then DW can transfer the money from the accounts into the estate account and then it would be equally distributed as part of the Will and probate process.

We mentioned the gift approach with the IRS Form 709 which she said is an option but with the constructive trust approach she had some concern over potential IRS questions with no documentation. In both cases she indicated there could be even some potential sibling issues on the amount that was distributed.

Her recommendation in depositing the monies directly in the estate account with the full accounting of what goes in and out for all to see with the final signoff of the amount by all the inheritees before receiving their share would be the best approach from an all-parties-invovled perspective.

It just seems a bit counter-intuitive to me to take monies that are legally outside of the will/probate process and then depositing it into the estate account to be held up by that process and potential unforeseen hiccups versus the gift approach with IRS Form 709 or the constructive trust potential surfaced by Gill. Any additonal thoughts on this would be very much appreciated.
That's correct. If she's conceding that it was for convenience, it becomes an estate asset. Alternatively she could say it's hers, in which case her siblings could claim that it was for convenience.

Including it in the estate won't necessarily hold anything up except that it's often more convenient to distribute everything at the end if no one has any immediate need for money.
Thanks bsteiner for your input. One thing that I've seen mentioned but our Estate Attorney never brought up was consider executing a partial disclaimer (both of share of the account and share of the account that would pass to DW under the will)?

FIL's Estate Attorney only indicated going to the financial instituition with the Death Certificate and filling out the L-8 form so all funds were released to DW and then we could deposit that check into the estate account once that's set up.

Not sure if a partial disclaimer is needed or not so i guess we will have to reach out to the Estate Attorney for further clarification but would appreciate any additional input that anyone can provide.
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Re: Gift Tax and IRS Form 709

Post by bsteiner »

bpg1234 wrote: Sun Dec 12, 2021 4:54 pm ... One thing that I've seen mentioned but our Estate Attorney never brought up was consider executing a partial disclaimer (both of share of the account and share of the account that would pass to DW under the will)?

FIL's Estate Attorney only indicated going to the financial institution with the Death Certificate and filling out the L-8 form so all funds were released to DW and then we could deposit that check into the estate account once that's set up.

Not sure if a partial disclaimer is needed or not so i guess we will have to reach out to the Estate Attorney for further clarification but would appreciate any additional input that anyone can provide.
Your reference to Form L-8 suggests that it's a New Jersey estate. Form L-8 is an affidavit that the asset passes to Class A beneficiaries (close relatives) who are exempt from New Jersey inheritance tax, and allows the financial institution to release them without a waiver from the taxing authorities.

You are correct that you could accomplish the same thing by disclaimer. Instead of conceding that the account was a convenience account and belongs to the estate, your wife could disclaim a portion of the account. She would then also disclaim the increase in her share of her estate resulting from her disclaimer of a portion of the account. If she has any children, they would also have to disclaim that increase. If she has any grandchildren, they would then also have to disclaim that increase. If the Will is well-drafted, it will give her children the power to disclaim on behalf of their minor grandchildren. If not, a guardian will have to be appointed for the minor grandchildren, and the guardian will have to ask for court approval to disclaim on behalf of the minor grandchildren.

I think that conceding that the account was a convenience account will usually be simpler than a series of disclaimers.

In either case, this illustrates some of the disadvantages of joint accounts.
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bpg1234
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

bsteiner wrote: Sun Dec 12, 2021 7:20 pm
bpg1234 wrote: Sun Dec 12, 2021 4:54 pm ... One thing that I've seen mentioned but our Estate Attorney never brought up was consider executing a partial disclaimer (both of share of the account and share of the account that would pass to DW under the will)?

FIL's Estate Attorney only indicated going to the financial institution with the Death Certificate and filling out the L-8 form so all funds were released to DW and then we could deposit that check into the estate account once that's set up.

Not sure if a partial disclaimer is needed or not so i guess we will have to reach out to the Estate Attorney for further clarification but would appreciate any additional input that anyone can provide.
Your reference to Form L-8 suggests that it's a New Jersey estate. Form L-8 is an affidavit that the asset passes to Class A beneficiaries (close relatives) who are exempt from New Jersey inheritance tax, and allows the financial institution to release them without a waiver from the taxing authorities.

You are correct that you could accomplish the same thing by disclaimer. Instead of conceding that the account was a convenience account and belongs to the estate, your wife could disclaim a portion of the account. She would then also disclaim the increase in her share of her estate resulting from her disclaimer of a portion of the account. If she has any children, they would also have to disclaim that increase. If she has any grandchildren, they would then also have to disclaim that increase. If the Will is well-drafted, it will give her children the power to disclaim on behalf of their minor grandchildren. If not, a guardian will have to be appointed for the minor grandchildren, and the guardian will have to ask for court approval to disclaim on behalf of the minor grandchildren.

I think that conceding that the account was a convenience account will usually be simpler than a series of disclaimers.

In either case, this illustrates some of the disadvantages of joint accounts.
Thanks once again bsteiner.

Question regarding "conceding that the account was a convenience account".

DW (who is also Executor of the Estate) would go to the financial institution with death certificate and fill out the L-8 form and then the account would be retitled and be available to her to transfer into the estate account and be equally distributed to all four siblings as outlined in the will? With this approach there would be no need for disclaimers?

Thanks yet again.
capran
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Re: Gift Tax and IRS Form 709

Post by capran »

fourwheelcycle wrote: Mon Nov 29, 2021 6:45 am
Gill wrote: Mon Nov 29, 2021 6:01 am I would take the position DW was only a joint owner for convenience purposes and now holds the proceeds as constructive trustee for her siblings. Her distributions to her siblings are only settling the estate and completing her duty as constructive trustee and therefore do not constitute gifts.
Gill
Interesting comment from Gill. I manage all of my father's finances and I am the executor for his will. He has sold his house and now lives in a memory care unit. In order to avoid the need to travel to his distant state for probate, I have set up most of his savings in a brokerage account at Vanguard, with each of his children as equal share TOD beneficiaries. In order to pay his final taxes and other expenses, I also set up a joint account with my father as the primary owner and me as secondary. All of the funds are in the money market settlement account, and I was careful to limit the total to less than $15K times the number of siblings.
After talking to Vanguard years ago I came away with the belief that they did not allow TOD for beneficiaries. I seem to recall something about because the state in which their headquarters didn't allow TOD's, even though we live in Washington State. Sounds like they obviously do accept TODs. Thank you for posting that.
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bpg1234
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

bsteiner wrote: Sun Dec 12, 2021 7:20 pm
bpg1234 wrote: Sun Dec 12, 2021 4:54 pm ... One thing that I've seen mentioned but our Estate Attorney never brought up was consider executing a partial disclaimer (both of share of the account and share of the account that would pass to DW under the will)?

FIL's Estate Attorney only indicated going to the financial institution with the Death Certificate and filling out the L-8 form so all funds were released to DW and then we could deposit that check into the estate account once that's set up.

Not sure if a partial disclaimer is needed or not so i guess we will have to reach out to the Estate Attorney for further clarification but would appreciate any additional input that anyone can provide.
Your reference to Form L-8 suggests that it's a New Jersey estate. Form L-8 is an affidavit that the asset passes to Class A beneficiaries (close relatives) who are exempt from New Jersey inheritance tax, and allows the financial institution to release them without a waiver from the taxing authorities.

You are correct that you could accomplish the same thing by disclaimer. Instead of conceding that the account was a convenience account and belongs to the estate, your wife could disclaim a portion of the account. She would then also disclaim the increase in her share of her estate resulting from her disclaimer of a portion of the account. If she has any children, they would also have to disclaim that increase. If she has any grandchildren, they would then also have to disclaim that increase. If the Will is well-drafted, it will give her children the power to disclaim on behalf of their minor grandchildren. If not, a guardian will have to be appointed for the minor grandchildren, and the guardian will have to ask for court approval to disclaim on behalf of the minor grandchildren.

I think that conceding that the account was a convenience account will usually be simpler than a series of disclaimers.

In either case, this illustrates some of the disadvantages of joint accounts.
bump in case got buried
bsteiner
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Re: Gift Tax and IRS Form 709

Post by bsteiner »

bpg1234 wrote: Sun Dec 12, 2021 8:03 pm ...
DW (who is also Executor of the Estate) would go to the financial institution with death certificate and fill out the L-8 form and then the account would be retitled and be available to her to transfer into the estate account and be equally distributed to all four siblings as outlined in the will? With this approach there would be no need for disclaimers?
It could be treated as a gift if the IRS thought it wasn't a convenience account and she threw it in as a gift.
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Re: Gift Tax and IRS Form 709

Post by fourwheelcycle »

capran wrote: Sun Dec 12, 2021 10:23 pm After talking to Vanguard years ago I came away with the belief that they did not allow TOD for beneficiaries. I seem to recall something about because the state in which their headquarters didn't allow TOD's, even though we live in Washington State. Sounds like they obviously do accept TODs. Thank you for posting that.
The last time I asked Vanguard, in 2016, they would allow beneficiary designations for single owner accounts but not for joint accounts. As I understand it, a beneficiary designation is a TOD designation. The beneficiaries need to contact Vanguard after the owner dies, provide a copy of the death certificate (perhaps only if the executor has not already provided one), open an account at Vanguard if they do not already have one, and advise Vanguard whether they want Vanguard to place their share of the deceased's holdings in their account or sell their share and place the proceeds in their settlement account.

Perhaps they can make the holdings vs. cash choice for each holding - I don't know the answer to that question.
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Lee_WSP
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Re: Gift Tax and IRS Form 709

Post by Lee_WSP »

capran wrote: Sun Dec 12, 2021 10:23 pm
fourwheelcycle wrote: Mon Nov 29, 2021 6:45 am
Gill wrote: Mon Nov 29, 2021 6:01 am I would take the position DW was only a joint owner for convenience purposes and now holds the proceeds as constructive trustee for her siblings. Her distributions to her siblings are only settling the estate and completing her duty as constructive trustee and therefore do not constitute gifts.
Gill
Interesting comment from Gill. I manage all of my father's finances and I am the executor for his will. He has sold his house and now lives in a memory care unit. In order to avoid the need to travel to his distant state for probate, I have set up most of his savings in a brokerage account at Vanguard, with each of his children as equal share TOD beneficiaries. In order to pay his final taxes and other expenses, I also set up a joint account with my father as the primary owner and me as secondary. All of the funds are in the money market settlement account, and I was careful to limit the total to less than $15K times the number of siblings.
After talking to Vanguard years ago I came away with the belief that they did not allow TOD for beneficiaries. I seem to recall something about because the state in which their headquarters didn't allow TOD's, even though we live in Washington State. Sounds like they obviously do accept TODs. Thank you for posting that.
A transfer on death for a beneficiary? As in the beneficiary takes control of the account and then adds their own beneficiary? The workaround is to transfer or retitle the account and they can add their own beneficiary.

Unless you’re referring to a backup beneficiary, which is called a successor or contingent beneficiary. You may be able to add those.

Either way, I don’t recommend using beneficiary designations unless specifically told to do so by an estate lawyer. Except for retirement accounts.
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Re: Gift Tax and IRS Form 709

Post by bsteiner »

Lee_WSP wrote: Mon Dec 13, 2021 3:27 pm ... I don’t recommend using beneficiary designations unless specifically told to do so by an estate lawyer. Except for retirement accounts.
I don't either, with the additional exception of life insurance.

We had an estate where every asset passed either by TOD designation or joint ownership, thus completely defeating the Will. However, the beneficiary designations for different accounts were signed on different dates. So unlike a Will contest involving the testator's capacity at the time he/she signed the Will, this case involved the decedent's capacity on many different dates. It was clear that at some point before he signed any of them he had capacity, and that at some point after he signed the last one he no longer had capacity. However, since he signed them on different dates, the facts with regard to each of them were different. The personal representative tried to claw them back into the estate. The entire estate was only about $3 million, but it took about 10 years and several hundred thousand dollars in legal fees until it was completely settled.

We've had other estates where TOD designations defeated the estate plan, or where they would have defeated the estate plan except for the generosity of a TOD beneficiary in voluntarily making gifts to beneficiaries of cash bequests under the Will.
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Re: Gift Tax and IRS Form 709

Post by capran »

Lee_WSP wrote: Mon Dec 13, 2021 3:27 pm
capran wrote: Sun Dec 12, 2021 10:23 pm
fourwheelcycle wrote: Mon Nov 29, 2021 6:45 am
Gill wrote: Mon Nov 29, 2021 6:01 am I would take the position DW was only a joint owner for convenience purposes and now holds the proceeds as constructive trustee for her siblings. Her distributions to her siblings are only settling the estate and completing her duty as constructive trustee and therefore do not constitute gifts.
Gill
Interesting comment from Gill. I manage all of my father's finances and I am the executor for his will. He has sold his house and now lives in a memory care unit. In order to avoid the need to travel to his distant state for probate, I have set up most of his savings in a brokerage account at Vanguard, with each of his children as equal share TOD beneficiaries. In order to pay his final taxes and other expenses, I also set up a joint account with my father as the primary owner and me as secondary. All of the funds are in the money market settlement account, and I was careful to limit the total to less than $15K times the number of siblings.
After talking to Vanguard years ago I came away with the belief that they did not allow TOD for beneficiaries. I seem to recall something about because the state in which their headquarters didn't allow TOD's, even though we live in Washington State. Sounds like they obviously do accept TODs. Thank you for posting that.
A transfer on death for a beneficiary? As in the beneficiary takes control of the account and then adds their own beneficiary? The workaround is to transfer or retitle the account and they can add their own beneficiary.

Unless you’re referring to a backup beneficiary, which is called a successor or contingent beneficiary. You may be able to add those.

Either way, I don’t recommend using beneficiary designations unless specifically told to do so by an estate lawyer. Except for retirement accounts.
Looks like I will have to pony up for the lawyer fee's sooner or later. We have an 11 to 12 year old revokable trust set up by a brothers "trust factory" long before I ever heard of Bogleheads. I put the quotes in that because they clearly are in the presentations geared toward marketing their trusts. As I have said on other posts, they have a pretty slick presentation that included such tactics as showing famous people with "large estates that lost 50% of their estate to probate fees". Ever since retiring we have consolidated all our accounts, so instead of each of us having a state deferred compensation account, tIRA, 403b and a self directed teachers retirement account as well as a Roth, plus one joint Vanguard taxable account, we now have all deferred accounts rolled into one tIRA each, plus each having a Roth and one joint brokerage account. When we set up the trust the attorneys had us list the trust as the beneficiary for all accounts as well as the house title and CU account being in the name of the trust. The more I read the more I realize how little I know. Obviously if one spouse passes first, everything should get rolled into the survivor. But looking forward from there, it would sure be nice to have a simplified TOD to expedite transfer to heirs and avoid probate. In looking at my Vanguard folders, in our tIRA and Roth accounts, the spouse is Primary and the secondary is listed as "to the trustee of the #### LIVING TRUST. I went through the joint account notebook very carefully. There is nothing about any beneficiary, not from our introductory letter when we transferred money into the joint account, nor when Vanguard prompted us to convert the joint account into a joint "brokerage account". In our Retirement accounts (the tIRA and Roth) we get an annual "verification of beneficiary designations" letter, but nothing on our joint brokerage account. Guess I'll start with a message to Vanguard.
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Lee_WSP
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Re: Gift Tax and IRS Form 709

Post by Lee_WSP »

IMO, the only people who "need" to avoid probate, and I use this term loosely, are those dependent upon the decedent. For children, that's what you buy life insurance for. For spouses, joint accounts generally work. For adult beneficiaries, an inter vivos solution should have been in place.

That said, allowing these folks access to money quickly doesn't necessarily need a revocable living trust.
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Re: Gift Tax and IRS Form 709

Post by capran »

Lee_WSP wrote: Mon Dec 13, 2021 5:34 pm IMO, the only people who "need" to avoid probate, and I use this term loosely, are those dependent upon the decedent. For children, that's what you buy life insurance for. For spouses, joint accounts generally work. For adult beneficiaries, an inter vivos solution should have been in place.

That said, allowing these folks access to money quickly doesn't necessarily need a revocable living trust.
I get it. We were suckered into thinking we needed a trust to avoid probate. I have never heard the term "inter vivos solution". I did log onto vanguard to check on our beneficiary designations. The retirement accounts both list the trust as secondary. For Joint accounts, it says "Joint accounts don't need beneficiaries. Joint accounts simply pass to the surviving owner." Well, my question to them and to Bogleheads is this: What happens if during our travels we both die together. We take frequent road and air trips. It would be helpful to understand what would happen. With the CU account, the joint account is in the trust, and our monthly statements are addressed to "##### Family Trust". Maybe I should move this to a new thread.
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Re: Gift Tax and IRS Form 709

Post by Lee_WSP »

capran wrote: Mon Dec 13, 2021 5:56 pm
Lee_WSP wrote: Mon Dec 13, 2021 5:34 pm IMO, the only people who "need" to avoid probate, and I use this term loosely, are those dependent upon the decedent. For children, that's what you buy life insurance for. For spouses, joint accounts generally work. For adult beneficiaries, an inter vivos solution should have been in place.

That said, allowing these folks access to money quickly doesn't necessarily need a revocable living trust.
I get it. We were suckered into thinking we needed a trust to avoid probate. I have never heard the term "inter vivos solution". I did log onto vanguard to check on our beneficiary designations. The retirement accounts both list the trust as secondary. For Joint accounts, it says "Joint accounts don't need beneficiaries. Joint accounts simply pass to the surviving owner." Well, my question to them and to Bogleheads is this: What happens if during our travels we both die together. We take frequent road and air trips. It would be helpful to understand what would happen. With the CU account, the joint account is in the trust, and our monthly statements are addressed to "##### Family Trust". Maybe I should move this to a new thread.
Assuming they didn't let you name a beneficiary, it goes to your estate. However, it should be titled in the trust, in which case it'd go to the trust.

Also, don't knock yourself too hard. Planners like Bruce are very hard to find IMO.
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Re: Gift Tax and IRS Form 709

Post by capran »

Lee_WSP wrote: Mon Dec 13, 2021 6:29 pm
capran wrote: Mon Dec 13, 2021 5:56 pm
Lee_WSP wrote: Mon Dec 13, 2021 5:34 pm IMO, the only people who "need" to avoid probate, and I use this term loosely, are those dependent upon the decedent. For children, that's what you buy life insurance for. For spouses, joint accounts generally work. For adult beneficiaries, an inter vivos solution should have been in place.

That said, allowing these folks access to money quickly doesn't necessarily need a revocable living trust.
I get it. We were suckered into thinking we needed a trust to avoid probate. I have never heard the term "inter vivos solution". I did log onto vanguard to check on our beneficiary designations. The retirement accounts both list the trust as secondary. For Joint accounts, it says "Joint accounts don't need beneficiaries. Joint accounts simply pass to the surviving owner." Well, my question to them and to Bogleheads is this: What happens if during our travels we both die together. We take frequent road and air trips. It would be helpful to understand what would happen. With the CU account, the joint account is in the trust, and our monthly statements are addressed to "##### Family Trust". Maybe I should move this to a new thread.
Assuming they didn't let you name a beneficiary, it goes to your estate. However, it should be titled in the trust, in which case it'd go to the trust.

Also, don't knock yourself too hard. Planners like Bruce are very hard to find IMO.
I am always hardest on myself. When we got the living trust, we just relied on the paperwork being properly prepared (and paid good money- about 3500 at the time). We signed a lot of forms that went to the different accounts- Vanguard, bank, home title, which we thought were registering the trust in whatever way it needed to be. If not for what I read in Bogleheads, I would be oblivious to these issues. I am hoping to get clarification from Vanguard about what would happen if we both passed in a common accident re: the joint account. Is it titled in the trust? If so, where can I find that?
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

Lee_WSP wrote: Mon Dec 13, 2021 3:27 pm Either way, I don’t recommend using beneficiary designations unless specifically told to do so by an estate lawyer. Except for retirement accounts.
OP here, this thread evolved a lot from the original theme but to an additional topic of interest since we were just recently discussing with Vanguard the benefits of changing our joint after-tax brokerage account to a single brokerage account in my name with DW as TOD beneficiary and our two children as secondary TOD beneficiaries.

The rep indicated our jointly held assets could be transferred in kind to the new account so no tax implications and it would be easier on DW if I were to predecease her and she would also receive the revised cost basis upon my passing, all outside of the Will and probate. Sounded good to me so we have been considering the approach so curious why this is not recommended, especially in our case.

Thanks yet again.
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Re: Gift Tax and IRS Form 709

Post by delamer »

bpg1234 wrote: Mon Dec 13, 2021 7:12 pm
Lee_WSP wrote: Mon Dec 13, 2021 3:27 pm Either way, I don’t recommend using beneficiary designations unless specifically told to do so by an estate lawyer. Except for retirement accounts.
OP here, this thread evolved a lot from the original theme but to an additional topic of interest since we were just recently discussing with Vanguard the benefits of changing our joint after-tax brokerage account to a single brokerage account in my name with DW as TOD beneficiary and our two children as secondary TOD beneficiaries.

The rep indicated our jointly held assets could be transferred in kind to the new account so no tax implications and it would be easier on DW if I were to predecease her and she would also receive the revised cost basis upon my passing, all outside of the Will and probate. Sounded good to me so we have been considering the approach so curious why this is not recommended, especially in our case.

Thanks yet again.
How would you have reacted if Vanguard had suggested removing you from the account and putting it in your wife’s name with you as TOD beneficiary?

And how would you handle your wife having access to the funds in this joint account if needed/desired before you die?

I would not give up access to an account with my name on it because it “would be easier on” me if my husband died first. At a minimum, I’d want 2 duplicate accounts.
One thing that humbles me deeply is to see that human genius has its limits while human stupidity does not. - Alexandre Dumas, fils
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Re: Gift Tax and IRS Form 709

Post by bpg1234 »

delamer wrote: Mon Dec 13, 2021 8:16 pm
bpg1234 wrote: Mon Dec 13, 2021 7:12 pm
Lee_WSP wrote: Mon Dec 13, 2021 3:27 pm Either way, I don’t recommend using beneficiary designations unless specifically told to do so by an estate lawyer. Except for retirement accounts.
OP here, this thread evolved a lot from the original theme but to an additional topic of interest since we were just recently discussing with Vanguard the benefits of changing our joint after-tax brokerage account to a single brokerage account in my name with DW as TOD beneficiary and our two children as secondary TOD beneficiaries.

The rep indicated our jointly held assets could be transferred in kind to the new account so no tax implications and it would be easier on DW if I were to predecease her and she would also receive the revised cost basis upon my passing, all outside of the Will and probate. Sounded good to me so we have been considering the approach so curious why this is not recommended, especially in our case.

Thanks yet again.
How would you have reacted if Vanguard had suggested removing you from the account and putting it in your wife’s name with you as TOD beneficiary?
I personally wouldn't care as we have other accounts titled with one of us as single owner and other beneficiary to increase FDIC/NCUA protection limits at some financial institutions. In this case it does sound like it would make things easier if one of us chose this route for the survivor to inherit the increased cost basis of all of the holdings and easy access to do what the other wants without having to go through probate. This is one of the things DW likes about a number of her father's accounts that were left to her and her siblings.

And how would you handle your wife having access to the funds in this joint account if needed/desired before you die?
It is highly unlikely DW would ever need to touch these funds as our thinking was they will ultimately pass through to our children at increased cost basis but to your point you never know. As such, I would think DW or me (if DW becomes single owner with me as TOD) could be assigned POA over the account (as DW was with her father's accounts) to gain access to the funds if the need arose and the other was incapacitated or something.

I would not give up access to an account with my name on it because it “would be easier on” me if my husband died first. At a minimum, I’d want 2 duplicate accounts.
Good questions. See responses.
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