JWROS Investment Account - My Mom and I - Who Pays tax?

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fs20
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JWROS Investment Account - My Mom and I - Who Pays tax?

Post by fs20 »

[Topic is now in Personal Finance (Not Investing) - tax liability question. mod mkc]

My mom and I opened a JWROS Investment account together. I'm the joint owner and this account has no beneficiaries. She has 3 children including me. She will be the only one contributing to this account.

1) Who will be paying the tax on any interest? I'm assuming she will get the 1099-R because she setup the account and added me as the Joint Owner.
2) What happens when she passes away? Will this account solely belong to me? Would I owe any income, inheritance, estate taxes on it?

[OP’s follow-up thread with additional information and questions has been merged below into this thread - Moderator ClaycordJCA.]
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retired@50
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by retired@50 »

fs20 wrote: Sat Mar 30, 2024 10:19 am My mom and I opened a JWROS Investment account together. I'm the joint owner and this account has no beneficiaries. She has 3 children including me. She will be the only one contributing to this account.

1) Who will be paying the tax on any interest? I'm assuming she will get the 1099-R because she setup the account and added me as the Joint Owner.
2) What happens when she passes away? Will this account solely belong to me? Would I owe any income, inheritance, estate taxes on it?
Welcome to the forum.

I'm puzzled by the JWROS account, and the reference to a 1099-R.

From what I understand about the 1099-R document is that it's issued when a distribution is made from an IRA, but IRAs can't be held in a "joint" account... So which is it?

Regards,
"All of us would be better investors if we just made fewer decisions." - Daniel Kahneman
PoppyA
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by PoppyA »

Taxes would normally be paid by the person who’s social security number is listed as primary on the account.
bonesly
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by bonesly »

PoppyA wrote: Sat Mar 30, 2024 1:24 pm Taxes would normally be paid by the person who’s social security number is listed as primary on the account.
+1 for this regarding JWROS (which must be a taxable account; can't be a Trad/Roth IRA).
fs20 wrote: Sat Mar 30, 2024 10:19 am I'm assuming she will get the 1099-R because she setup the account and added me as the Joint Owner.
Like Retired@50, I'm puzzled by the mention of a 1099-R (which could be a pension, profit-sharing plan, IRA, but whatever it is it's individual to just your mom and has nothing to do with the joint account she setup). Perhaps you are meaning that some of her monthly 1099-R income from a pension account is being deposited into this joint (taxable) account?
fs20 wrote: Sat Mar 30, 2024 10:19 am 2) What happens when she passes away? Will this account solely belong to me? Would I owe any income, inheritance, estate taxes on it?
As the joint owner with right of survivorship (JWROS), the account becomes solely yours. There should be no taxes owed on it as your mom would've been paying taxes each year. The year your mom passes her executor would need to file a final tax return and taxes owed from income generated by this account would be paid on her final tax return.

You might want to discuss your mom's intent with this account. Did she setup a similar account for each of your other siblings? Are you her executor? Is her estate size under the probate threshold in the state she resides in?

My mom made me a joint owner on her checking account, but she did that because her estate would not require probate (small) and I was her executor. So I paid her bills out of her account (joint w/me) until the estate was settled (all known/expected bills paid, active life insurance policies were exercised, minimum time duration to settle an account in that state had been met, etc.), then the residual was split three ways per the will among me and my two siblings. I did not keep it all simply because my mom added me as a joint owner; her intent was for me to pay the bills and split the residual three ways.

If she did create a joint account for other two siblings as well, she might be looking to avoid gift taxes or an on-going tax burden to her children? It's not clear why she wouldn't just gift money to each of you directly rather than hold it in a joint account since if she stays under the annual gift tax exclusion ($18K/yr per giftee I think) there's no tax owed by her nor by your; it's a tax-free gift. Perhaps it's the on-going income tax she wants to pay for her kids while she's alive, but you'd have access to the money with no tax-burden to you (until she passes, then taxes on income earned by this account would be the burden of you and your siblings if they have such accounts as well).
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fs20
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Complex inheritance issues - Avoiding Probate and Suits

Post by fs20 »

[I merged OP’s more detailed explanation and additional questions into the original thread. OP, it is best to include all relevant information in a single thread so other members have the benefit of additional detail and other members’ input. You can edit your post by using the pencil ( ✏️ ) icon - Moderator ClaycordJCA.]

My original question was this viewtopic.php?t=428509 but perhaps it's better to explain the whole situation:

My mom has several investment accounts (401ks, high yield savings accounts, brokerage accounts, annuities) all worth about a million. She has 3 children. She wrote a will a long time ago to split all of the assets equally between all the children. This will was sent to Child #3. Then my mom wrote another will recently which she lost. Child #3 also destroyed the original will ON the request of my mom recently.

She is not on good terms with Child #1 and Child #3. Child #1 has "disowned" her and has not spoken in many many years. Child #3 calls occasionally but they have long arguments and then they stop talking for months. They are also not on good terms with me.

My mom is now fed up with them and wants to add me (Child #2) as the beneficiaries of all of the accounts. However, some of the accounts (I believe it's a fidelity brokerage account where her money is just sitting as "cash" where she uses it as a "high yield savings account" (SPAXX)), she wants to add me as the Joint Owner (JWROS).

When she passes, she wants only me to inherit whatever is there in the accounts. She does not want any of the money to go to the other 2 children. She has told Child #3 of this decision (through phone call and text). She cannot tell Child #1 because they have blocked her but Child #3 has said they have notified Child #1 of my mom's decision.

If some day, my siblings try to recourse against me, she has given me video recordings of her telling them not to do it because she gave only me the inheritance and the reason of why she gave only me.

Questions:
  • 1) What are the implications of this?
    2) What recourse can my siblings take against my mom or me?
    3) Is there a simpler way of doing this? Can she "gift" me the money little by little? What if they sue me saying I took that money?
bsteiner
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Re: Complex inheritance issues - Avoiding Probate and Suits

Post by bsteiner »

She should leave it to you in trust rather than outright, to keep it out of your estate for estate tax purposes, and to protect it against your creditors and spouses.

Regardless of what she does or how she does it, your siblings may contest it. To best defend against a challenge or head off a challenge, she should do this with her lawyer, who should maintain custody of her Will. If possible, she should select the lawyer, get to the lawyer without you bringing her there, and tell the lawyer what she wants without you being in the room or on the phone call or Zoom meeting.

She'll need to coordinate her beneficiary designations for her retirement benefits with her estate plan.

If her state allows an in terrorem (no contest) provision in a Will, she might want to leave each of the others enough money (perhaps $50,000 or $100,000 each) so they'll have an incentive not to contest the Will. If she cuts them out, they'll have nothing to lose by contesting her Will. I think Florida is the only state that doesn't allow in terrorem clauses, though many states won't enforce them if the challenger had probable cause to contest the Will.
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illumination
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Re: Complex inheritance issues - Avoiding Probate and Suits

Post by illumination »

Make sure the retirement account(s) beneficiary is changed to accurately reflect her wishes. That one trips people up quite a bit.

FWIW, I had extended family that had some estate drama and the no-contest/in terrorem clause basically stopped a lot of potential litigation from getting off the ground. The person that died knew there was going to be a lot of ticked off people (she even told people there was going to be fireworks). At least for that state, the clause seemed to work as intended. I heard through the grapevine some of them went to an attorney and that was why they didn't try and sue.
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Re: Complex inheritance issues - Avoiding Probate and Suits

Post by investuntilimrich »

If she adds you as the sole beneficiary on the retirement accounts, I don't think you'll have an issue there. She's going to need a will that's properly witessed, signed, and make sure you have a copy, too. Since the will is likely to be contested, I would recommend you seek legal counsel while she's still in good health and can make sound decisions.
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fs20
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by fs20 »

Thanks for the responses.

Few more questions....

1) If all she has is investment accounts with each one having beneficiaries or being JWROS, does she really need a will?

2) Do we have to go to a lawyer to create the will? Can she simply create a document to revoke all previous wills and then write which account should go to which who and sign it in front of witnesses and notary? She talked to some "estate planner/lawyers" a couple of years ago and they were estimating huge fees ($4K+) just to write a will.
Geologist
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by Geologist »

A $4000 fee to write a will, if indeed that is the right amount, when your mother's assets are about a million is not a huge fee.

Beyond that, if she arranges beneficiaries or JWROS on all financial accounts, how will her final bills be paid?
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by HomeStretch »

imo it’s best to have a Will in the situation you describe. The Executor named in the Will has the legal authority to pay outstanding bills, make/pay burial arrangements, dispose of personal effects, sell any property, file final tax returns, etc. However, if your mom leaves everything to you via POD/TOD/JOWRS, there will not be any funds in the estate for the Executor to access for legitimate estate expenses. If you are both Executor and beneficiary, that minimizes the issue.

Regarding DIY v. a lawyer-prepared Will (and DPOA, HC POA, trust, etc.), consider following the suggestions posted above by bsteiner especially in light of the strained family relationships and disinheritance of your two siblings.
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by bonesly »

fs20 wrote: Sun Mar 31, 2024 8:17 am 1) If all she has is investment accounts with each one having beneficiaries or being JWROS, does she really need a will?
Technically no, but you are expecting challenges to the estate distribution, so she really should have a will. Additionally, you're only focused on investment accounts, but does she own her home or any other real-estate, cars/campers/boats, jewelry, furniture, art, etc? All of that tangible property has to be disposed of in accordance with the will by the executor, who also needs to pay her debts she owes and collect on debts owed to her (ongoing household bills, last medical bills, funeral expenses, last SocSec/Pension deposits, life insurance payouts, etc.) out of an estate account until her home and other property is liquidated and/or distributed and the estate can be closed out with the court, usually after a minimum estate processing period (I was done with my mom's estate in about 3 months, but had to wait 6 months before close-out per state law).
fs20 wrote: Sun Mar 31, 2024 8:17 am 2) Do we have to go to a lawyer to create the will? Can she simply create a document to revoke all previous wills and then write which account should go to which who and sign it in front of witnesses and notary? She talked to some "estate planner/lawyers" a couple of years ago and they were estimating huge fees ($4K+) just to write a will.
I agree with others that for an estate in excess of $1M, you really should not cut costs by just taking a self-written will to a notary. Pay a professional to have the legal language more challenge-proof, without errors, and filed with the city or county (and have the attorney retain the original, you and your mom get copies). The last thing you want if you are expecting challenges is a will that can be invalidated in a court review. We paid about $3,500 for our wills, power of attorney, health care directives, and to update our deed (from Warranty to Transfer-on-Death). We considered a trust, which avoids probate, but that would have complicated things for our kids who are Canadian (if they'd chosen US citizenship, we'd have done a trust in a heartbeat).
Last edited by bonesly on Sun Mar 31, 2024 5:39 pm, edited 1 time in total.
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by BirdFood »

fs20 wrote: Sun Mar 31, 2024 8:17 am Thanks for the responses.

Few more questions....

1) If all she has is investment accounts with each one having beneficiaries or being JWROS, does she really need a will?

2) Do we have to go to a lawyer to create the will? Can she simply create a document to revoke all previous wills and then write which account should go to which who and sign it in front of witnesses and notary? She talked to some "estate planner/lawyers" a couple of years ago and they were estimating huge fees ($4K+) just to write a will.
I strongly suspect that it would end up costing far more than $4K to NOT have a will.
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by CenTexan »

bonesly wrote: Sun Mar 31, 2024 12:09 pm
fs20 wrote: Sun Mar 31, 2024 8:17 am 1) If all she has is investment accounts with each one having beneficiaries or being JWROS, does she really need a will?
Technically no, but you are expecting challenges to the estate distribution, so she really should have a will.
This is the paramount reason to have the will.
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fs20
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by fs20 »

Thank you all for the responses.

We have contacted a estate planning lawyer and setup an appointment.

From my research here, it seems there is another "type" of lawyer called a elderly attorney? Is there a difference between the estate planning lawyer and elderly attorney?
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by Eagle33 »

fs20 wrote: Mon Apr 01, 2024 3:57 pm Is there a difference between the estate planning lawyer and elderly attorney?
What Is Elder Law vs. Estate Planning?
As a non-lawyer, my take is estate planning is for plans regarding 'after death' details and elder law is for plans regarding 'prior to death' details.
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fs20
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by fs20 »

An update:
My mom talked to an highly reviewed elder lawyer and they said that this case was complex. I also went because she wanted me to be there. He recommended to create a trust instead of a will because it would avoid probate. He said to make mom the trustee and then the successor as me. He said to then name the beneficiary of each of the accounts to the trust. He said that if the other 2 siblings wanted to sue, there is no way to avoid it but having a trust makes it a stronger case. He said it would also be private instead of public like a will. It would cost my mom about $2,000 more to create the trust.

Based on this, should she really create a trust or just a simple will?
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by twh »

This doesn't seem complicated to me. Of course, a lot of this can be more or less complicated depending on the state you live in.

Mom has three children and wants to cut out two and leave it all to one.

JWROS is a typically bad idea because you will not get a stepped up basis of any assets in those accounts.

For the accounts held at brokers, just change the beneficiary to the one child 100% and remove the other two. These brokerage accounts will be TOD (transfer on death) and that is very simple. You call or go into the brokerage and bring the death certificate and they will transfer all the assets to you at the stepped up basis.

For any real estate, you may need something here in the way of a will or trust or some states have TOD real estate titling now. If there is TOD real estate, that too just happens.

Then you are left with the "stuff". If there is some high dollar stuff, then you may need something. If not, I'd think a will is fine.
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by Alan S. »

twh wrote: Sat Apr 06, 2024 2:19 pm
JWROS is a typically bad idea because you will not get a stepped up basis of any assets in those accounts.
While it may not be the best decision, this is not due to lack of basis adjustment. The portion of the account that was contributed by the decedent (in this case 100%) will receive the basis adjustment at decedent's death.
twh
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Re: JWROS Investment Account - My Mom and I - Who Pays tax?

Post by twh »

Alan S. wrote: Sat Apr 06, 2024 7:04 pm
twh wrote: Sat Apr 06, 2024 2:19 pm
JWROS is a typically bad idea because you will not get a stepped up basis of any assets in those accounts.
While it may not be the best decision, this is not due to lack of basis adjustment. The portion of the account that was contributed by the decedent (in this case 100%) will receive the basis adjustment at decedent's death.
You might want to expand of the technical details of when this goes wrong. For example, this might lead some to believe that putting their kids name on the house deed is safe to do -- a common, but big mistake.
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