Preserving ownership of money during bank transfer

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Preserving ownership of money during bank transfer

Postby gd » Sun Dec 30, 2012 5:29 pm

Throwing a question out to see if my intuition is correct: My spouse wants to transfer funds from one savings account to another, both in her name only. The only current path is through a joint checking account. I am concerned that even a brief passage through that account will remove her ownership of them-- I believe the term is commingled. I want to keep her claim to the funds pristine for various reasons, including unrelated claims against me (hypothetical!) and gift tax issues because she is not a US citizen (there are limits on how much one can 'gift' to a non-citizen spouse).

Does anyone know if there is settled doctrine as to whether records indicating prompt transfers of a specific amount of money will preserve her ownership of it against later challenges? Neither of us is concerned about things happening during the brief period it is in the joint account, just what its legal status is afterwards.
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Re: Preserving ownership of money during bank transfer

Postby LadyGeek » Sun Dec 30, 2012 5:37 pm

Just a thought. Do you have access to a brick-n-mortar institution? If so, do an in-person cash withdrawal from account A and deposit immediately in account B. I'm sure the bank teller can do this without physical cash, the ACH intermediate account is avoided. If it's cash above a certain threshold, I think some reporting is required.

If not, ask if the online institution has another option besides ACH transfers.
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Re: Preserving ownership of money during bank transfer

Postby RobInCT » Sun Dec 30, 2012 5:43 pm

There are a lot of factors to consider here that might impact the practical--if not the legal--risk of this course of action, including the quantity involved and whether one or more of the institutions is located overseas. That said, I would personally not take the risk. Even if it's 100% okay, if it triggers a fraud alert, you don't want to be on the receiving end of that investigation with the IRS.

Can she open another bank account herself in her name only to serve as the pass-through and then close it immediately? Get a cashier's check instead of a wire transfer?
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Re: Preserving ownership of money during bank transfer

Postby livesoft » Sun Dec 30, 2012 5:47 pm

Based on what the OP wrote, I would not pass the money through the joint account. I can kind of envision scenarios why this would be the "only current path", but it seems it would be easy to build another path, too.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Preserving ownership of money during bank transfer

Postby JDCPAEsq » Sun Dec 30, 2012 6:53 pm

Why not just get a chashier's check on the one account and deposit it to the other?
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Re: Preserving ownership of money during bank transfer

Postby sscritic » Sun Dec 30, 2012 6:56 pm

Check your state law. In CA, with respect to separate property vs community property in a divorce, separate property that can be "traced" remains separate even if temporarily (or even permanently) commingled.
Proving separate property frequently involves cash passing through cash accounts on its way to the acquisition of property. Cash is fungible, so what happens when separate and community cash is commingled in the same account? Commingled accounts become community unless they are “traced.” Tracing cash accounts relies on artificial rules developed by case law. Unlike other property, titled property rules do not apply to bank accounts. If traced, cash accounts’ community and separate character may be maintained.

I often hear clients say, “The account is in my name and it’s my money.” This does not apply even for accounts open before marriage once community cash is deposited and commingled in the account.

CPAs often are asked to trace cash accounts. Tracing rules are:
(1) cash at marriage is separate; (2) deposits during marriage are presumed community unless they can be identified from a separate source; (3) disbursements for family living expenses are paid from community funds; (4) community debts are paid from community; and (5) separate debts are paid from separate funds. Application of these rules segregates cash balances at any point as community, separate or mixed character, and overcome the commingled presumption.

In See v See (1966) 64 Cal.2d 778 the California Supreme Court stated, “If funds used for acquisitions during marriage cannot otherwise be traced to their source and the husband who has commingled property is unable to establish that there was a deficit in the community accounts when the assets were purchased, the presumption controls that property acquired by purchase during marriage is community property.”


Reduce the account to $1. Pass the money through. Raise the account back up. That's one approach.
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Re: Preserving ownership of money during bank transfer

Postby livesoft » Sun Dec 30, 2012 7:02 pm

JDCPAEsq wrote:Why not just get a chashier's check on the one account and deposit it to the other?
John

I suspect spouse is no where near the banks in question and could not go in person to get this done. That's why an electronic method is trying to be used.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Preserving ownership of money during bank transfer

Postby gd » Sun Dec 30, 2012 9:28 pm

OP here. Okay, I was just trying to avoid extraneous details. Absolutely nothing dubious going on here, we want to transfer money from an overseas account (fully disclosed and taxed in US) to an internet bank account or possibly MMF in the USA, both in just my spouse's name. She is non-US citizen, and there are restrictions on large transfers between spouses and estate taxes that most people don't have. We don't usually worry about ownership; she calls the overseas bank, they wire the occasional smallish amounts to our local US checking account and we do an online transfer to a joint internet bank account, but I'm trying to do some long-range asset and estate planning that could use a bit more rigor. Sounds like there are not standard criteria for doing this, and I need to look into transferring to accounts I haven't tried before. Thanks.

Edit: Not common-law state, by the way. This is all demonstrably her stuff.
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Re: Preserving ownership of money during bank transfer

Postby sscritic » Sun Dec 30, 2012 10:35 pm

gd wrote:Edit: Not common-law state, by the way. This is all demonstrably her stuff.

Are you sure? States that are not community property are common law; states that are not common law are community property (I think this ignores LA).
In America, there are two systems that govern marital property: community property and common law (also called marital property).
...
Unless you sign a prenuptial or postnuptial agreement splitting things differently, the laws of the state in which you reside -- your domicile -- will determine what's yours, mine and ours.

I wrote that you should learn the laws of your state. The laws of my state don't matter; the laws of livesoft's state don't matter; the laws of LadyGeek's state don't matter; the laws of RobInCT's state (CT?) don't matter; and the laws of John's state don't matter (unless you share a state with one of us).

No one implied it wasn't her stuff; you asked how to make sure that was not lost during the transfer.
Does anyone know if there is settled doctrine as to whether records indicating prompt transfers of a specific amount of money will preserve her ownership of it against later challenges?

The answer is in the laws of your state, not another.
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Re: Preserving ownership of money during bank transfer

Postby tfb » Mon Dec 31, 2012 12:45 am

gd wrote:We don't usually worry about ownership; she calls the overseas bank, they wire the occasional smallish amounts to our local US checking account and we do an online transfer to a joint internet bank account, but I'm trying to do some long-range asset and estate planning that could use a bit more rigor.

A savings account can accept incoming wire transfers just as a checking account. So you just do what you usually do except changing the destination bank account information.
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Re: Preserving ownership of money during bank transfer

Postby gd » Mon Dec 31, 2012 8:54 am

sscritic wrote:
gd wrote:Edit: Not common-law state, by the way. This is all demonstrably her stuff.

Are you sure? States that are not community property are common law; states that are not common law are community property (I think this ignores LA).

Sorry, mis-typed, I meant community property as you were describing in CA.

I have done some prior research on the state issue-- which is only half the overall issue; the federal tax law is probably more important to get straight because it has a way of changing unexpectedly and for the worse. The question of commingling during transfers is an aspect that has come up mostly recently, and my post is an effort to determine if there is an obvious standard answer before digging deeper and more formally.

I perceived some mild scepticism of my motives in some of the responses, perhaps I was wrong. We are painfully scrupulous in our handling of these foreign asset/tax issues, painfully aware that lots of people view it as an opportunity for deception, and so get a little prickly sometimes. Thanks for the responses.
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Re: Preserving ownership of money during bank transfer

Postby sscritic » Mon Dec 31, 2012 10:15 am

I am still not sure about the particulars of your concern. For ownership issues, I think the key is the state. For gift tax issues, she can give you an unlimited amount each year if she lives in the US, and you can give her $139,000 under the annual exclusion (as long as you do it today, I couldn't find the 2013 limit*).
A person is considered to be domiciled in the United States for estate and gift tax purposes if they live in the United States with no present intention of leaving the United States.

For gifts made in 2012, the annual exclusion for gifts to noncitizen spouses will be $139,000 (up from $136,000 for 2011).

and slightly dated
The $13,000 annual exclusion amount is increased for gifts to a non-U.S. citizen spouse to $134,000 per year in 2010 ($136,000 in 2011; indexed each year). In contrast, an unlimited amount can be gifted to a spouse who is a U.S. citizen pursuant to the unlimited marital deduction.


These are all just semi-random quotes from the internet.

* But I know how to calculate it. I got someone to do the annual exclusion back in October when the inflation numbers came out (actually before; this limit depends on the August inflation number that came out in September, but we didn't try to calculate it until October when people were thinking about all the limits like SS and various contribution limits that need the September numbers); the calculation is the same times 10.
(i) Disallowance of marital deduction where spouse not citizen
If the spouse of the donor is not a citizen of the United States—
(1) no deduction shall be allowed under this section,
(2) section 2503 (b) shall be applied with respect to gifts which are made by the donor to such spouse and with respect to which a deduction would be allowable under this section but for paragraph (1) by substituting “$100,000” for “$10,000”, and

[side note: if you are a citizen, then when your wife gives you money, you are the spouse of the donor and you are not affected by this disallowance.]

2503(b) is the inflation adjustment for the annual exclusion, which started at 10,000 in 1997 and will be $14,000 in 2013. Because of the rounding rules
If any amount as adjusted under the preceding sentence is not a multiple of $1,000, such amount shall be rounded to the next lowest multiple of $1,000.

the final answers are not exact multiples, e.g., $13,000 and $139,000 in 2012. What I can deduce is that the limit for the non-citizen spouse will be at least $140,000 in 2013 since the annual exclusion $14,000 in 2013.
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Re: Preserving ownership of money during bank transfer

Postby campy2010 » Mon Dec 31, 2012 10:31 am

So you think you have to transfer from A->B->C and there is no option for A->C? I think you should should avoid any potential problems and find an A->C option.

I have a hard time believing that you have 2 bank accounts that don't have at least one of the following options

1. wire transfer
2. ACH deposit
3. check writing, perhaps with mobile check deposit capability
4. bill pay to yourself

I'm sure I'm missing a few other means of getting money between 2 accounts. Perhaps others can chime in with other ideas.
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Re: Preserving ownership of money during bank transfer

Postby sscritic » Mon Dec 31, 2012 11:01 am

How many millions are we talking about? For smaller amounts, I am not sure what the issue is.

Example: she puts $250k into a joint account. Let's forget tracing and pretend she has given you a gift of a half interest or $125,000. You then transfer the $250,000 to her separate account. You have then given her a gift of your half interest of $125,000. All the gifts were under their respective annual exclusions and there is no gift tax consequence.

If you hurry and get that $250k done today, you can do another $250,000 tomorrow, for a total of $500,000. Using the $139,000 limit today and the (my guess) $141,000 limit tomorrow, you can transfer $558,000 in two days with no gift tax consequences.

Of course, I don't think you have to worry about any of this if your state uses tracing on separate property, but I don't know your state laws.
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Re: Preserving ownership of money during bank transfer

Postby livesoft » Mon Dec 31, 2012 11:10 am

campy2010 wrote:So you think you have to transfer from A->B->C and there is no option for A->C? I think you should should avoid any potential problems and find an A->C option.

I have a hard time believing that you have 2 bank accounts that don't have at least one of the following options ....

First, these are 2 savings accounts. They are not checking accounts. Second, he does not want the money to go through a joint checking account. Third, the savings accounts are at different financial institutions. Fourth, it appears that the woman cannot walk in to the physical location of the savings accounts and present ID and get the money. This latter thing is not unusual to me since I used to have a savings account in the 1970s where I had to mail my passbook to another state for each deposit. I never went into the savings bank and the internet (nor BITNET, nor ARPAnet, etc) had been invented yet.

These 4 things conspire to make this transfer less easy than first meets the eye. You already know that savings accounts do not have the same ACH transfer capabilities as checking accounts. Otherwise, folks would enter their savings accounts for their bank info at Vanguard and Fidelity and other places. The brokerages want a checking account and not a savings account for this.

One can always request a check be mailed from one savings account, then after receipt it can be mailed to the other savings account. That's how I would do it 1974.
It's all about short-term opportunistic rebalancing due to a short-term change in one's asset allocation, uh, I mean opportunistic rebalancing, uh I mean rebalancing, uh I mean market timing.
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Re: Preserving ownership of money during bank transfer

Postby sscritic » Mon Dec 31, 2012 11:33 am

She could open her own separate checking account where she lives. There may even be a bank within walking distance of where they live. That takes 30 minutes or so.
The only current path is through a joint checking account.

That is easily changed. If you need a separate account to handle the transfer cleanly, open a separate account.
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Re: Preserving ownership of money during bank transfer

Postby Default User BR » Mon Dec 31, 2012 2:05 pm

livesoft wrote:One can always request a check be mailed from one savings account, then after receipt it can be mailed to the other savings account. That's how I would do it 1974.

That's how I did it in 2012 with my PenFed account. I hadn't realized when I had them put the home-equity loan money in the savings account that they had severe ACH restrictions on it. I had them cut a check and mail it to me for deposit in another account.


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Re: Preserving ownership of money during bank transfer

Postby dm200 » Mon Dec 31, 2012 2:41 pm

IMO, whether a brief passage through a joint account "taints" ownership, for your purposes, can probably only be correctly addressed by an attorney (or similar) experienced in both the laws of your state and the issue(s) of concern to you.

The one, similar, issue that my wife and I had experience with concerned advice we received when we did wills, etc. The estate planning attorney advised that any funds received by either spouse in an inheritance were more "protected" if they were never comingled in a joint account. My "guess, then, is that passage through a joint ownership account, might also "taint" ownership. If I were convinced that the individual ownership was essential, then I would not risk it and just move the money from one savings account to another. W withdrawal check from one deposited in the other might be the simplest way to do just that.
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