Would This Be A Problem

[MsTabbyKats]

I know a couple with a 30 year old son.  Since birth the mother has been putting money into various mutual funds for him.  First it was custodial accounts and after he turned 18 she changed it to joint account...with him being the primary, all at Fidelity.   The value is about $150K.  She wants to switch it into his individual account now.   This shouldn't be an issue, should it?

 

 

 

 

[kcjenkins]

Don't you just love it when clients try to DIY their financial affairs without asking for your professional advice?  Because she has kept control of the money she's put in since he became 18, that could be argued those were not 'completed' gifts, If so, when she transfers it to him it's going to be treated as one gift now of the entire amount, except for the amounts given in the first 17 years into the 'custodial account', and the earning up to then.  Since then, earnings would need to be divided, calculated based on 'his' percentage, [the first 18 years] and' her percentage.  She was doing it right, but then changed it.  

Now, remember, I'm not in possession of any of the documents, so I could be wrong, depending on her state law and the actual details of how the account was set up.  But I'd advise that you dig a bit, before you advise her.  Hopefully, Fidelity set it up right, and she's just using the term 'joint account' in a generic sense.  There's a good chance @MsTabbyKats, that it's ok, but we don't know what she told Fidelity, etc.  Look at the paperwork, talk to her Fidelity broker, etc, before you make the call.

[Max W]

According to Rev ruling 69-148, money in the joint account is not a completed gift, Until it is withdrawn.

Now, the question is, would yearly withdrawals over $14K require a Gift Tax return?

Another issue will arise when a 1099R is issued after the funds are withdrawn.  The son will have to prove that the basis was a gift and that means coming up with records going back 30 years. What are the odds on this?  I had a case where there were non-taxable IRA contributions going back 12 years made without filing 8606.  We tried to get the statements from the broker, but they only went back 10 years.

http://www.andrewmitchel.com/charts/rr_69_148.pdf

[MsTabbyKats]

This isn't an IRA....just regular accounts and the son is the primary....paying all the tax.

They'll probably just leave it "as is"....but she was wondering about transferring it to him...just in case down the road she needs round the clock medical assistance and if this would be considered her money and his money....as opposed to just his. (A mutual friend is now paying her mother's nursing home bill because they transferred money less than 5 years ago.)

 

[jklcpa]

32 minutes ago, MsTabbyKats said:

This isn't an IRA....just regular accounts and the son is the primary....paying all the tax.

They'll probably just leave it "as is"....but she was wondering about transferring it to him...just in case down the road she needs round the clock medical assistance and if this would be considered her money and his money....as opposed to just his. (A mutual friend is now paying her mother's nursing home bill because they transferred money less than 5 years ago.)

 

 

If you are asking about medicaid qualifications and ramifications of taking her name off of the account or transferring the assets solely into the son's name, then yes, it would be a problem and would be included if the transfer occurred during the lookback period.

[Abby Normal]

Don't leave it as is. Transfer it ASAP. File gift tax return for 75k (or whatever) this year and be done with it. Start the clock running.

[SaraEA]

If this was an UGMA account, all the money Mom put in for the first 18 years belongs to the son.  It was a gift to him over the years and is his money.  She was only custodian--if she withdrew any she would have to account for it and use it for him (and not for the basic necessities that parents are supposed to provide for their minor children).  There have been many lawsuits where adult children sue their parents or grandparents when they learn they once had a custodial account and the older generation took some or all of the funds.

When Mom changed it into a joint account, the son actually made a gift to her!  Of course it wasn't a completed gift because she didn't withdraw anything, as Max noted. I don't see any issues with him removing her from the account--it was never her money to begin with.  If she put money in after it became a joint account, then that is her money.  She should withdraw it and gift it to him.

Why do people go through all the shenanigans so they can go on Title 19 and let the other taxpayers take care of them?  I truly believe that we as a society should take care of our impoverished elderly.  But too many are becoming impoverished by choice.  Yea lady, I'll be happy to pay for your care with my hard-earned tax dollars while your son is sitting back counting his $150k.

[MsTabbyKats]

This mom and dad have plenty of money.  Mom was just curious because a mutual friend has a 98 year old mother and was denied Medicaid because they transferred assets when that mom was 94.

For the record, I agree with people trying to get the govt to support their elderly parents.  I have explained to the mutual friend that it's her mother's money....NOT her money....but she doesn't want to hear this.

The people I was asking about really just do things to make life easy....as far as transfers and access.  They'd rather keep things "as is".  Son is the opposite of greedy.

Thanks for the opinions.....

[SaraEA]

Sorry that I was assuming your client had questionable motives.  The reason I went there is that when her son became an adult she titled the account jointly--that's weird and made me wonder what she was thinking.  The son might just take her name off the account if she wants to simplify things and not worry about gift tax returns.  This assumes the parents are no where near the $10+ million exemption they share.  Let the IRS figure it out (they won't).