Tax on joint brokerage accounts?

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sky jumper
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Tax on joint brokerage accounts?

Post by sky jumper » Thu Sep 21, 2017 2:02 pm

looking for advice on a joint account help with my 2 siblings.

Here's the scenario --- we are splitting a $500k life insurance payout on my father who passed recently. each child gets 1/3. The money is to be used to pay for my mother's ongoing care in a nursing home. Our intent is to pool the money in a jointly held brokerage account and invest in a mix of bond funds and government money market funds. maybe put some in an index fund.

Question --- how can we allocate the capital gains on form 1099 at the end of the year? I am the person who would open the account but I don't want to get hit with all the income tax when we withdraw funds to pay for mom.

I suspect a trust might work here, but I don't know much about them other than you have to pay a lawyer a bunch of money to create one. We'd rather keep things simple.

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prudent
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Re: Tax on joint brokerage accounts?

Post by prudent » Thu Sep 21, 2017 3:01 pm

One way to keep things simple is to agree that the person reporting the income can take the equivalent amount of resulting income tax from the account to make them whole. This assumes the amount of income wouldn't push someone over a threshold for things like being able to contribute to an IRA contribution for example.

psteinx
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Re: Tax on joint brokerage accounts?

Post by psteinx » Thu Sep 21, 2017 3:17 pm

So, the father's life insurance proceeds flowed to the 3 children, even though the mother is still alive (and needs funds)?

That's odd - normally I would think the father's life insurance proceeds would flow first to the spouse, and only then to children, unless perhaps mother and father were divorced or something like that.

Perhaps a lawyer will comment (I am not one), but I'm not sure a structure exists that will do what you want cleanly, cheaply, and tax-efficiently (and fairly). Can you just agree to split mom's costs evenly amongst you, with each holding their life insurance proceeds independently?

aristotelian
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Re: Tax on joint brokerage accounts?

Post by aristotelian » Thu Sep 21, 2017 3:21 pm

Much simpler to just agree to cover the costs and leave it up to each individual. You do not need a separate account for this, much less a jointly held one. If it costs each of you $500/month, why does it matter whether it comes out of your jointly held brokerage account, your paycheck, or some other account?

livesoft
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Re: Tax on joint brokerage accounts?

Post by livesoft » Thu Sep 21, 2017 3:23 pm

I don't see the point of a joint account when each of you can have your own separate account that has each of your own SSN on it. What's the point of a joint account? I don't see the point of a trust.

You could have a joint account and after you get the 1099-B/1099-DIV/1099-INT, then you could issue 1099s to each of your siblings for their portion (and you put a negative number on your Schedule B and Schedule D). This is discussed in the rules/publications at IRS.gov, so go check it out. But that seems like a hassle when separate accounts are so easy.
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livesoft
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Re: Tax on joint brokerage accounts?

Post by livesoft » Thu Sep 21, 2017 3:27 pm

I had another thought: 3 separate joint accounts with each of your SSN as the primary owner as first on each of the 3 joint accounts. The bad news with joint accounts is that your liabilities get entwined, so if one of you goes bankrupt, the others lose their money.
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FIREchief
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Re: Tax on joint brokerage accounts?

Post by FIREchief » Thu Sep 21, 2017 6:05 pm

livesoft wrote:
Thu Sep 21, 2017 3:27 pm
The bad news with joint accounts is that your liabilities get entwined, so if one of you goes bankrupt, the others lose their money.
Divorce could also create complications. There is also the (hopefully small) risk that at some point one of the joint owners decides to empty the account for something other than paying Mom's bills. With separate accounts, at least some of the money is protected from the perspective of each of the three kids.
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fourwheelcycle
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Re: Tax on joint brokerage accounts?

Post by fourwheelcycle » Fri Sep 22, 2017 3:22 am

Three separate accounts with each sibling voluntarily paying one third of expenses seems simplest. However, if other two siblings trust OP, each could open accounts at Vanguard and execute full agent authorization forms for OP. Then OP could pay expenses one third from each account, with all tax forms going to respective account owners.

I imagine other investment houses have similar full agent auhorization arrangements.

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Re: Tax on joint brokerage accounts?

Post by AlohaJoe » Fri Sep 22, 2017 3:27 am

sky jumper wrote:
Thu Sep 21, 2017 2:02 pm
Question --- how can we allocate the capital gains on form 1099 at the end of the year?
https://www.irs.gov/publications/p550/c ... nk10009846
Joint accounts. If two or more persons hold property (such as a savings account, bond, or stock) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest or dividends from the property is determined by local law.
Though I'm not sure if this also applies to capital gains.

denovo
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Re: Tax on joint brokerage accounts?

Post by denovo » Fri Sep 22, 2017 4:18 am

sky jumper wrote:
Thu Sep 21, 2017 2:02 pm


Here's the scenario --- we are splitting a $500k life insurance payout on my father who passed recently. each child gets 1/3. The money is to be used to pay for my mother's ongoing care in a nursing home. Our intent is to pool the money in a jointly held brokerage account and invest in a mix of bond funds and government money market funds. maybe put some in an index fund.

As others have noted, this is complicated for no reason. You should each have your own account, or better yet, if you trust your mother and there's no Medicaid Issues, just all 3 of you leave the money to mom and whatever remains after she passess will be given to you guys as part of her estate.

aristotelian
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Re: Tax on joint brokerage accounts?

Post by aristotelian » Fri Sep 22, 2017 7:20 am

denovo wrote:
Fri Sep 22, 2017 4:18 am
sky jumper wrote:
Thu Sep 21, 2017 2:02 pm


Here's the scenario --- we are splitting a $500k life insurance payout on my father who passed recently. each child gets 1/3. The money is to be used to pay for my mother's ongoing care in a nursing home. Our intent is to pool the money in a jointly held brokerage account and invest in a mix of bond funds and government money market funds. maybe put some in an index fund.

As others have noted, this is complicated for no reason. You should each have your own account, or better yet, if you trust your mother and there's no Medicaid Issues, just all 3 of you leave the money to mom and whatever remains after she passess will be given to you guys as part of her estate.
Might be more tax efficient that way, if she is in a lower tax bracket. If she can't control her own finances, she could designate one of the kids with agent authorization and designate the kids as 33% beneficiaries of whatever is left.

sky jumper
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Re: Tax on joint brokerage accounts?

Post by sky jumper » Fri Sep 22, 2017 9:34 am

thanks for the replies. some good insights here. to add a bit more context - my mother has no capability to manage her own finances. I am her finance power of attorney, which helps to a certain extent (but as I've learned it's not as easy as saying "I'm her POA" and then having the banks, brokerage firms, 3rd party service providers, etc giving you the ability to step in.... they make it very difficult). On top of that we'd like to keep her medicaid eligible, which was another consideration in directing the life insurance money to the kids.

all 3 kids maintaining separate accounts would probably work. although I'd like to actively manage the investments for the total amount so that we can maximize earnings while my mom is still alive (eg use the earning to pay for her care). My siblings know nothing about investing, so they appointed me as I have a bit of experience. I'd rather manage one account than three.

doing a bit of research it appears there's a way to "nominate" gains to other people. e.g. I'd first record the full amount on my 1040, then deduct & nominate the appropriate amounts to my siblings.

as someone pointed out I suppose I could just assume the entire amount myself and then recoup the extra tax from the distributed funds. I don't think this would impact me in terms of income based phase-outs, and it would probably be the easiest.

then there's the shared liability aspect which I'll admit I haven't given much thought to...

maybe a trust isn't such a bad idea after all.

dbr
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Re: Tax on joint brokerage accounts?

Post by dbr » Fri Sep 22, 2017 9:43 am

Wouldn't a joint account allow any one of the holders to spend anything they want from the account?

I am not sure on the actual details of tax liability for a case like this, but it sure seems to me splitting the holdings into individual account makes all kinds of sense and the joint account serves no purpose at all.

Is it even possible that a joint account actually fails to meet the terms of distributing the money to the three beneficiaries?

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Kevin M
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Re: Tax on joint brokerage accounts?

Post by Kevin M » Fri Sep 22, 2017 12:08 pm

sky jumper wrote:
Fri Sep 22, 2017 9:34 am
I'd rather manage one account than three.
As already pointed out, at Vanguard, for example, your siblings could grant you agent authorization for their accounts, and you would then have online access to their accounts with your login. It's still three accounts, but with your single login, it wouldn't take much extra time to manage three instead of one. You could set up automatic withdrawals to a checking account to pay the nursing home costs, so that part would be zero maintenance.

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