moving my mother's "escape" fund to me

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RNMentor
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moving my mother's "escape" fund to me

Post by RNMentor » Sun Feb 11, 2018 12:50 pm

My mother and father had a tumultuous relationship when I was younger. At one point she thought she might need to escape, and saved up a large amount of money in case that event happened. It is currently in a joint account with my aunt's name as the primary account holder, and my mother's name as the secondary account owner. This ensured that my father didn't see any of the paperwork or tax documents associated with it.

She wants to move it to my name so I can control it. However, she does not want any paperwork to follow her and wants all notifications, tax forms, etc to be under my name - so my father still does not see the paperwork.

After years of growth the investment amount is now $87k. I know I can transfer the funds into my Vanguard account and it won't create a taxable event until they are sold (or so Vanguard told me). I wanted to sell the assets and move them into VTSAX.

My goals are to transfer the funds with the least tax, and move the shares into VTSAX with the least tax generated. It will all be long term capital gains.

I know she could give my wife, my daughter, and I up to $14,000 each per year, tax free. Should she liquidate the funds in the other firm first, and then give $14,000 to each us of each year until the money runs out?

Financial considerations: My wife and I grossed $142,000 in 2017 (paid equally), taxable income of $87,000. I live in New Hampshire. We currently claim no other capital gains. My wife is pregnant and we plan that she will stop working and be a stay at home mother. That means our joint income will drop to 75k, we still hope to max out my 403b and IRAs. It may open up some opportunities for claiming additional income without causing major tax implications.

I'm new to tax management, so guidance would be greatly appreciated!

Thanks in advance!

Nutmeg
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Re: moving my mother's "escape" fund to me

Post by Nutmeg » Sun Feb 11, 2018 2:25 pm

Your post brings up several questions and comments.

Exactly what is the current investment vehicle for the funds?

Is your aunt on board with this plan? Is she married?

Is there a possibility that your mother will want the funds back later for a future escape, or does your mother intend this to be a gift to you?

One option might be for your aunt to make an in-kind transfer of shares to you if the funds are in a transferable shares.

Note that the gift tax exclusion amount is $15,000 per person for 2018. A married person can give $30,000 per person with her spouse's consent. Whether the transfer is made as an in-kind transfer or in cash, gift taxes should be considered.

Have you considered whether you could ask that funds be contributed to a 529 for your daughter? This would allow more than $15,000 to be contributed to her in a calendar year. However, if the purpose is not to actually give you and your family the money, but rather to transfer control to you on behalf of your mother for future use, this will work only if you can set aside an equivalent amount of your own funds for that possibility.

RNMentor
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Re: moving my mother's "escape" fund to me

Post by RNMentor » Sun Feb 11, 2018 5:37 pm

They are currently in some mutual funds (maybe ETFs, I can't remember exactly) that my uncle had recommended years ago. A little in an individual stock. I would want to transfer the shares into VTSAX, so I'm sure whenever this occurs, it will result in capital gains.

My aunt is on board with the transfer and she is married.

My mother will no longer want to use them for a future escape. But for long term investment that my mother won't be able to touch. He tends to spend whatever money he sees in the accounts, which is why she wants it under my name.

At some point it might be a gift to us, but likely a safety net for her in case her retirement funds run out (her family tends to live into their late 90s). It's more just to transfer the control over the money.

I haven't asked about contributing to 529s for my daughter, as I want it to be evident that it is my mother's. I see where it would have worked if I had the equivalent amount of money to set aside for her 529 though.

I didn't realize that the "A married person can give $30,000 per person with her spouse's consent." Would I have to include this in my taxable income? In that case, it could be transferred in two years, but would still face the capital gains tax when transferred into VTSAX. Then I would assume this should be done after my wife quits work and we minimize our taxable income for the year.

Thanks for the response!

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celia
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Re: moving my mother's "escape" fund to me

Post by celia » Sun Feb 11, 2018 5:52 pm

RNMentor wrote:
Sun Feb 11, 2018 12:50 pm
My mother and father had a tumultuous relationship when I was younger. At one point she thought she might need to escape, and saved up a large amount of money in case that event happened.
If your parents lived in a community property state at the time she put these in a joint account with her sister, there may be a legal issue, since the money may be half your dad's. If there is, and you continue this plan, you may be an accessory and we don't condone that.
It is currently in a joint account with my aunt's name as the primary account holder, and my mother's name as the secondary account owner.
A joint account is a joint account. There is no primary or secondary account holders. Either person may do what they want with money in the account.

If there was no issue with the money being partly your dad's, I suggest having it in a joint account with you and your mom, just as it is now. You can control the investments and pay the tax using money out of the account. When you die, the money will automatically belong to your mom, who could then find another joint owner. Is she aware that if she dies first, the money is all yours (or goes to another joint owner)? If she has other children, that may need to be addressed.

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Re: moving my mother's "escape" fund to me

Post by mouses » Sun Feb 11, 2018 7:08 pm

celia wrote:
Sun Feb 11, 2018 5:52 pm
If your parents lived in a community property state at the time she put these in a joint account with her sister, there may be a legal issue, since the money may be half your dad's.
Wow, are you saying that in a community property state, if a person accumulates money through their own efforts and a divorce is not in the works, something like this happens: Like I save $10,000 and if I wanted to give it to a kid from a prior marriage (making up an example here), I could only give him $5000 and the other $5000 would have to be given to my spouse?

It sure doesn't sound the the Spend Everything spouse is following these rules.

RNMentor
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Re: moving my mother's "escape" fund to me

Post by RNMentor » Sun Feb 11, 2018 7:56 pm

Tell me if I understand this correctly.

Long term capital gains aren't taxed if a family joint income is below $77,400. If my wife stops working in 2019 and this becomes our financial situation (family gross becomes $75,000), I could liquidate any of the shares that are transferred into my name into my Vanguard account, without incurring long term capital gains tax. I could then purchase VTSAX without a problem.

Is this correct?

My parents do not live in a community property state, so those conditions should not apply.

I still am unaware if I need to treat gifts as taxable income, should my aunt and uncle give me and my wife $30,000 a piece. I still plan on maxing out my 403b, HSA, and IRAs, so if that is the case, perhaps I can just do it over the course of a few years.

Could they give the $30,000 to my daughter as well, thereby moving all 90k in one year?

Thanks again!

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Re: moving my mother's "escape" fund to me

Post by LadyGeek » Sun Feb 11, 2018 7:56 pm

RNMentor, Welcome!

Before making a decision based on advice from an anonymous internet forum, be sure you understand the situation yourself. The authoritative source for all things taxes is the IRS.

Here's a helpful FAQ: Frequently Asked Questions on Gift Taxes

Of note:
Who pays the gift tax?

The donor is generally responsible for paying the gift tax. Under special arrangements the donee may agree to pay the tax instead. Please visit with your tax professional if you are considering this type of arrangement.

What if my spouse and I want to give away property that we own together?

You are each entitled to the annual exclusion amount on the gift. Together, you can give $22,000 to each donee (2002-2005) or $24,000 (2006-2008), $26,000 (2009-2012) and $28,000 on or after January 1, 2013 (including 2014, 2015, 2016 and 2017). In 2018, the total for you and your spouse is $30,000.
From: What's New Estate and Gift Tax | Internal Revenue Service
In 2018, the annual exclusion is $15,000.
Since you are concerned with (legally!) hiding assets from someone, I highly recommend you consult with an attorney experienced in tax issues. You're concerned about federal taxes, but state law may have something to say about this as well.
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livesoft
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Re: moving my mother's "escape" fund to me

Post by livesoft » Sun Feb 11, 2018 8:03 pm

RNMentor wrote:
Sun Feb 11, 2018 7:56 pm
Tell me if I understand this correctly.

Long term capital gains aren't taxed if a family joint income is below $77,400. If my wife stops working in 2019 and this becomes our financial situation (family gross becomes $75,000), I could liquidate any of the shares that are transferred into my name into my Vanguard account, without incurring long term capital gains tax. I could then purchase VTSAX without a problem.

Is this correct?
The realized LT capital gains get added to your income, so any of those realized gains would be counted in the $77,400 you mentioned.
I still am unaware if I need to treat gifts as taxable income, should my aunt and uncle give me and my wife $30,000 a piece. I still plan on maxing out my 403b, HSA, and IRAs, so if that is the case, perhaps I can just do it over the course of a few years.

Could they give the $30,000 to my daughter as well, thereby moving all 90k in one year?
Yes, if your aunt transferred the money to an account with her husband on it, then your aunt and uncle could give you and your spouse the 4 times $15,000 worth of shares without selling them. To do this though, your mother would have to sign something to gift the shares to your uncle or otherwise change the registration on the account. And yes, your daughter could get in on the action, too, but it would be her shares and not yours then.
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Sandi_k
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Re: moving my mother's "escape" fund to me

Post by Sandi_k » Sun Feb 11, 2018 11:08 pm

Can your mom move it to Vanguard herself, and just elect paperless account settings?

If not, I would ask your mom and aunt to transfer $60k of the account (after capital gains taxes are paid by your aunt, as the account holder with SSN on file) to you and your wife this year ($30k from mom & Aunt to you, $30k from mom and aunt to your wife), and the remainder in 2019. Otherwise, you could end up paying CG taxes yourself.

No gift tax would be required, nor forms, as you'd be under the taxable exclusion amount each year.

FYI, I have co-ownership with an account with my mom - and she's been clear with my siblings that when she passes, this will be *my* account, since I've contributed to it monthly on her behalf (and they have not).

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Re: moving my mother's "escape" fund to me

Post by AlohaJoe » Sun Feb 11, 2018 11:45 pm

RNMentor wrote:
Sun Feb 11, 2018 12:50 pm
I know she could give my wife, my daughter, and I up to $14,000 each per year, tax free. Should she liquidate the funds in the other firm first, and then give $14,000 to each us of each year until the money runs out?
This isn't true.

Your aunt can give you $10 million tax free.

Unless your aunt's estate is bigger than that, there's absolutely no point messing around with annual gift exclusions. Ignore any advice about splitting it across multiple years.

If your aunt liquidates the funds then your aunt will have to pay taxes on it. Is that what you want to happen?

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Watty
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Re: moving my mother's "escape" fund to me

Post by Watty » Mon Feb 12, 2018 12:28 am

Along with all the other potential problems having the money in your name could impact the ability for your kid to get financial aid for college.

Along with all the permutations of various people dying, divorcing, getting sued, etc that could cause problems another one is that if your parents get any sort of income and asset based assistance then they would need to include this on their application forms. This is not just welfare and foodstamps. For example if they get a subsidy for an affordable care act health plan this would be important. Some areas also have income based property tax breaks. If they have high income there can also be things like Medicare surcharges that are based on your income. Adding these to your numbers if it is in your name could also cause problems.

If there is a problem with things like these then the back taxes and penalties can be huge.

I suspect that the best thing to do would be to have a lawyer create a trust for the money where you are the trustie, but I am not a lawyer and just some random guy on the internet.

Finridge
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Re: moving my mother's "escape" fund to me

Post by Finridge » Mon Feb 12, 2018 2:57 am

AlohaJoe wrote:
Sun Feb 11, 2018 11:45 pm


Your aunt can give you $10 million tax free.

Unless your aunt's estate is bigger than that, there's absolutely no point messing around with annual gift exclusions. Ignore any advice about splitting it across multiple years.
This is correct, but it gets even better--she can give away $11.18 million tax free.

If she gives away more than $15,000 per year (or more than $30,000 per year together with her husband) to you, then she would need to file a gift tax return. The gift tax return is filed on Form 709 (but no taxes would be payable until she gave away $11.18 million).

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celia
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Re: moving my mother's "escape" fund to me

Post by celia » Mon Feb 12, 2018 3:06 am

Nutmeg wrote:
Sun Feb 11, 2018 2:25 pm
Is there a possibility that your mother will want the funds back later for a future escape, or does your mother intend this to be a gift to you?
RNMentor wrote:
Sun Feb 11, 2018 5:37 pm
My mother will no longer want to use them for a future escape. But for long term investment that my mother won't be able to touch. He tends to spend whatever money he sees in the accounts, which is why she wants it under my name.
The answer to Nutmeg's question is not clear to me. If the funds are expected to be spent eventually on something your mom needs if she has an emergency (mom's medical, death of her husband), then I wouldn't co-mingle it with any of your own assets, and I certainly wouldn't put it in tax-advantaged accounts that would have "early withdrawal" penalties or penalties if not used for the purpose of the account (HSA=health, IRA=your retirement). If your mom dies before your dad, does she want the money to be used for him? In any of these cases, your wife needs to be on-board with this, because it could be a mess if you died first.

If the funds are a true gift for you to spend or use as you wish and you never need to give them back, then spend or use as you wish.

It might be best to get this in writing so there is no confusion at a later date.

mouses wrote:
Sun Feb 11, 2018 7:08 pm
celia wrote:
Sun Feb 11, 2018 5:52 pm
If your parents lived in a community property state at the time she put these in a joint account with her sister, there may be a legal issue, since the money may be half your dad's.
Wow, are you saying that in a community property state, if a person accumulates money through their own efforts and a divorce is not in the works, something like this happens: Like I save $10,000 and if I wanted to give it to a kid from a prior marriage (making up an example here), I could only give him $5000 and the other $5000 would have to be given to my spouse?
In a community property state, anything that is earned during the marriage by either person belongs to both of them. If you want to give away $10,000, you are really giving away $5,000 of your own money and $5,000 of your spouse. If the money is from an account you owned before marriage and you haven't co-mingled it with money earned during the marriage OR the money was inherited and hasn't been co-mingled, then it is the person's own money.
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djpeteski
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Re: moving my mother's "escape" fund to me

Post by djpeteski » Mon Feb 12, 2018 9:58 am

To me, it is a lot of mental energy trying to avoid the inevitable. If an escape fund is needed then it should probably be utilized.

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Re: moving my mother's "escape" fund to me

Post by aristotelian » Mon Feb 12, 2018 10:05 am

Could mom and aunt relinquish ownership of the account and put your name on it?

They might need to file a gift tax return, but otherwise I believe all it would take is signing a form from the custodian brokerage.

Alternatively, could mom find something else to spend the money on, or just save it? In terms of avoiding tax, it would make sense to simply hold it and name you as the beneficiary. Then the basis will reset when you inherit.

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Re: moving my mother's "escape" fund to me

Post by KlingKlang » Mon Feb 12, 2018 10:47 am

RNMentor wrote:
Sun Feb 11, 2018 12:50 pm
My mother and father had a tumultuous relationship when I was younger. At one point she thought she might need to escape, and saved up a large amount of money in case that event happened. It is currently in a joint account with my aunt's name as the primary account holder, and my mother's name as the secondary account owner. This ensured that my father didn't see any of the paperwork or tax documents associated with it.

She wants to move it to my name so I can control it. However, she does not want any paperwork to follow her and wants all notifications, tax forms, etc to be under my name - so my father still does not see the paperwork.
I would strongly suggest that you clarify all of the details of the current aunt/mother arrangement before planning the follow on son/mother arrangement.

Are any of the details of this arrangement in writing? Relevant questions have already been asked concerning what happens to the funds if your aunt, your mother, or your father die.

Is the income from the joint account being reported under your aunt's tax id? Is she using some of the income from the account to pay for the tax liability?

Do your mother and father file income taxes as Married Filing Jointly? If your mother is earning any income in her name under her tax id and not reporting it this would open up potential problems with IRS audits and is putting both parents at risk.

As celia mentioned, if your parents lived in a community property state at the time she put these in a joint account with her sister there could be potential problems.

One last thought. I consider it extremely likely that at some point your father is going to find out about this arrangement (overheard phone calls, a statement left out when he visits, privacy act notice from the institution, etc.). Have you considered the relationship and possible legal repercussions from this? Personally I would be extremely reluctant to jump into this situation.
Last edited by KlingKlang on Mon Feb 12, 2018 1:30 pm, edited 1 time in total.

junior
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Re: moving my mother's "escape" fund to me

Post by junior » Mon Feb 12, 2018 10:50 am

Why doesn't she simply use your address as the mailing address on the bank account but keep it in her name?

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Re: moving my mother's "escape" fund to me

Post by Shallowpockets » Mon Feb 12, 2018 11:19 am

The elephant in the room is your mothers possible need to escape. Apparently this was a percieved issue. Is it not so now? Why would she need to escape?
You appear to address the issue of how to manage the money and people have given you advice here. I wonder about this escape. Maybe that is something you should speak to your mother and aunt about.
Is the tumultuous relationship only in the past? Even now her husband is in the dark on this money account. What happens if he finds out? If the relationship is fine now, why keep secrets?
There is a lot here that is unspoken, unaddressed.

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Re: moving my mother's "escape" fund to me

Post by miamivice » Mon Feb 12, 2018 11:25 am

I'm sorry but what is being done by the OP is neither ethical nor legal.

Assets acquired in the course of marriage, in the 9 community property states, are jointly owned by the married couple. The same goes with debts and liabilities.

Trying to hide a large sum of money in your child's or sisters name from your spouse is both illegal as well as unethical.

Also, one does not need $87,000 to escape a bad marriage. Let's stop calling this an escape fund and rather an asset hiding fund.
Last edited by miamivice on Mon Feb 12, 2018 9:31 pm, edited 1 time in total.

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Re: moving my mother's "escape" fund to me

Post by miamivice » Mon Feb 12, 2018 11:31 am

mouses wrote:
Sun Feb 11, 2018 7:08 pm
celia wrote:
Sun Feb 11, 2018 5:52 pm
If your parents lived in a community property state at the time she put these in a joint account with her sister, there may be a legal issue, since the money may be half your dad's.
Wow, are you saying that in a community property state, if a person accumulates money through their own efforts and a divorce is not in the works, something like this happens: Like I save $10,000 and if I wanted to give it to a kid from a prior marriage (making up an example here), I could only give him $5000 and the other $5000 would have to be given to my spouse?

It sure doesn't sound the the Spend Everything spouse is following these rules.
In a community property state, all assets that are acquired and accumulated through marriage are jointly owned by both parties. The individual partners are free to spend and save and do whatever with the money that is accured, by every asset and every liability is owned by both parties.

It really only has application during a divorce proceeding though. It just means that if a couple were to divorce, all assets and liabilities would be split according to the laws of that state with no regard of whose name is on them.

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Re: moving my mother's "escape" fund to me

Post by aristotelian » Mon Feb 12, 2018 2:59 pm

miamivice wrote:
Mon Feb 12, 2018 11:25 am
I'm sorry but what is being done by the OP is neither ethical nor legal.

Assets acquired in the course of marriage, in almost every state, are jointly owned by the married couple. The same goes with debts and liabilities.

Trying to hide a large sum of money in your child's or sisters name from your spouse is both illegal as well as unethical.
You don't know the situation so you cannot say anything about the ethics of it, period.

As for legality, are you a lawyer? I would think anyone can spend or invest a joint asset at any time. People maintain all kinds of separate accounts. It would only be malfeasance if it was required to be disclosed during a divorce.

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Re: moving my mother's "escape" fund to me

Post by RNMentor » Mon Feb 12, 2018 8:45 pm

miamivice wrote:
Mon Feb 12, 2018 11:25 am
Also, one does not need $87,000 to escape a bad marriage. Let's stop calling this an escape fund and rather an asset hiding fund.
I have no problem admitting this. I also have no point you pointing it out. Yes, it currently is that. A sum of money was set aside when she faced being a single mother of two young children. It was given to family for safekeeping, it was eventually invested at some point in time, and the money grew over a couple of decades. I could have changed my wording, but I wasn't trying to cover up anything.

Yes, there are ethical considerations at play. I have to live with that and have to make a judgement call on it. There's no point delving into great detail of their history and their current situation, just to justify my ethical decision making.

I do appreciate the thoughts and feedback, and I wasn't trying to cover up a story in order to get more feedback.

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Re: moving my mother's "escape" fund to me

Post by sergeant » Mon Feb 12, 2018 8:57 pm

Make it POD to you. Change the mailing address to your address. Remove aunt's name from account. Leave it in mom's name.
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Re: moving my mother's "escape" fund to me

Post by Gill » Mon Feb 12, 2018 9:12 pm

miamivice wrote:
Mon Feb 12, 2018 11:25 am
I'm sorry but what is being done by the OP is neither ethical nor legal.

Assets acquired in the course of marriage, in almost every state, are jointly owned by the married couple. The same goes with debts and liabilities.
This is simply wrong. Married individuals can have both separate assets and liabilities. Please be careful with such blanket statements.
Gill

miamivice
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Re: moving my mother's "escape" fund to me

Post by miamivice » Mon Feb 12, 2018 9:24 pm

Gill wrote:
Mon Feb 12, 2018 9:12 pm
miamivice wrote:
Mon Feb 12, 2018 11:25 am
I'm sorry but what is being done by the OP is neither ethical nor legal.

Assets acquired in the course of marriage, in almost every state, are jointly owned by the married couple. The same goes with debts and liabilities.
This is simply wrong. Married individuals can have both separate assets and liabilities. Please be careful with such blanket statements.
Gill
Gill,

I'm certainly not aware of how a married couple can acquire assets or liabilities in a marriage that don't become jointly shared in a community property state. There are a few exceptions (inheritance is one example) but as a generalization it's a true statement.

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Re: moving my mother's "escape" fund to me

Post by Gill » Mon Feb 12, 2018 9:28 pm

miamivice wrote:
Mon Feb 12, 2018 9:24 pm
Gill wrote:
Mon Feb 12, 2018 9:12 pm
miamivice wrote:
Mon Feb 12, 2018 11:25 am
I'm sorry but what is being done by the OP is neither ethical nor legal.

Assets acquired in the course of marriage, in almost every state, are jointly owned by the married couple. The same goes with debts and liabilities.
This is simply wrong. Married individuals can have both separate assets and liabilities. Please be careful with such blanket statements.
Gill
Gill,

I'm certainly not aware of how a married couple can acquire assets or liabilities in a marriage that don't become jointly shared in a community property state. There are a few exceptions (inheritance is one example) but as a generalization it's a true statement.
You said “almost every state” which includes 40+ common law states.
Gill

miamivice
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Re: moving my mother's "escape" fund to me

Post by miamivice » Mon Feb 12, 2018 9:32 pm

Gill wrote:
Mon Feb 12, 2018 9:28 pm
miamivice wrote:
Mon Feb 12, 2018 9:24 pm
Gill wrote:
Mon Feb 12, 2018 9:12 pm
miamivice wrote:
Mon Feb 12, 2018 11:25 am
I'm sorry but what is being done by the OP is neither ethical nor legal.

Assets acquired in the course of marriage, in almost every state, are jointly owned by the married couple. The same goes with debts and liabilities.
This is simply wrong. Married individuals can have both separate assets and liabilities. Please be careful with such blanket statements.
Gill
Gill,

I'm certainly not aware of how a married couple can acquire assets or liabilities in a marriage that don't become jointly shared in a community property state. There are a few exceptions (inheritance is one example) but as a generalization it's a true statement.
You said “almost every state” which includes 40+ common law states.
Gill
I was thinking there were 40 community property states and 10 non-community property states. I had that backwards.

I've gone back and fixed my post.

Saving$
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Re: moving my mother's "escape" fund to me

Post by Saving$ » Mon Feb 12, 2018 9:46 pm

The OP has confirmed his parents are not in a community property state. Does not seem to be anything illegal or unethical about this.

OP
1. You write the account is currently held jointly by your mother and her sister (your aunt)
a. Account needs a SS number associated with it. Whose is it? Your aunts?
b. Whichever SS number is associated with the account is who is getting the tax statements. Has your aunt been paying the taxes on the earnings through the years?

2. What is the reason to change from joint account with aunt to joint with you? Is it simply because people are getting older so if something happens to one of them your mom wants to make sure you get the money, but in the meantime she wants to retain control? Will she be paying taxes on it or is the idea that you pay the taxes on it because it will eventually become yours?

3. Do you have any siblings?

RNMentor
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Re: moving my mother's "escape" fund to me

Post by RNMentor » Tue Feb 13, 2018 5:48 am

Saving$

1. I believe the social security number associated with it is my aunt's. I believe she has been paying any taxes associated with it up until now, but my mother has agreed to reimburse them.

2. I believe she wants to put me in charge of the account because I know the most about investing, and she is comfortable with my decision making. It tightens things up. We still haven't discussed her investment thoughts for the money. Since I was very young she was very concerned about having enough money to retire. Her family is long lived, my father spends whatever money he sees, she wants a security net. She has agreed to pay any taxes on it.

3. I have one sibling.

A prior poster noted the FAFSA implications, which was an interesting thought. My daughter is only 18 months, so I assume by the time she is of age, this money will no longer be in my possession. Great consideration though.

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