Changing Stock Title Will Help Wife Save Tax
Q: I am 87 years old and have a terminal illness. My wife and I, as joint tenants, own utility stocks that would generate huge capital gains taxes if we were to sell them now or she were to sell them after my death. What if I were to reregister the stocks under my name alone? Would such a transfer be taxed? Is there some way for me to transfer them to my wife now, so that she isn’t hit with a huge capital gains tax if she sells the shares after my death? --C. E. H.
A: Actually, the solution to your problem may be quite simple. Since you are living in California, a community property state, if the stocks were purchased with community property funds, you may simply reregister title to them from joint tenancy to community property. Then, when you die, your wife will be entitled to a full step-up in their value--to the value on the date of your death--and the capital gains liability you accumulated to that point will simply disappear.
This also is an important point for couples not facing terminal illness or old age. Assets held as community property are entitled to a full step-up in value to the decedent’s date of death. Assets held in joint tenancy receive that treatment only for the half held by the decedent. Couples not wishing to reregister their stock and other assets may simply want to append a note to their wills explaining that their intention is for their possessions, no matter how registered, to be considered community property.
The following statement was drafted by Marvin Goodson of the Los Angeles law firm of Goodson & Wachtel to handle such matters. We are reprinting it because of popular demand: “We hereby agree that all of the property we hold in joint tenancy is truly and completely community property, and we are holding it in joint tenancy for convenience only. We do not intend to change the character of the ownership of the property by holding it in joint tenancy.” Goodson recommends that married couples sign and date the statement, preferably before a witness, and file it with their wills. It does not have to be notarized. Goodson says this solution was upheld by the Internal Revenue Service in Revenue Ruling 87-98.
Finding a Company to Trace Old Stock
Q: Enclosed is a copy of a stock certificate that I inherited from my father-in-law. As you can see, the certificate, issued in 1910, is for 200 shares of Bay State Gas, a company I fear has long since ceased to operate. Can you help me find out if this certificate has any value today? --M. F. G.
A: Your question is among the most frequently asked of this column, so we will--again--tell readers how to track down old and out-of-date stock holdings. Despite the repetition, readers with an immediate problem are sure to benefit. And readers with a stock portfolio, or in a position to inherit one, may want to clip this information and file with their records.
After researching the services and prices of several search companies, we’ve found that the best bargain is Prudential-American Securities, 921 E. Green St., Pasadena, Calif. 91106. It charges $35 for each company researched.
Send duplicate copies of your stock certificates or other investment materials to Prudential-American, along with a check for the appropriate amount. A response should follow promptly.
Firm’s Sale Probably Ends Worry Over Will
Q: In 1985, when my husband owned a small business, he wrote out a will stating that in the event of his death, half the business would go to me and the other half would go to his children from his first marriage. In the years since, he has sold the business, and we have invested the remaining proceeds in an account with both our names on it. If he dies now, would his children have any claim to that money? --H. F.
A: According to our legal experts, your husband’s will should not require you to share any of the proceeds from the sale of the business now held in a joint account by the two of you.
Despite your husband’s initial decision to leave half the business to his children, our legal advisers say his children are not entitled to any proceeds now that the property has been sold.
The legal issue in question here is “adeption,” and the question is whether it applies to this case.
Adeption is a situation involving property specifically bequeathed in a will but sold or disposed of prior to the death of the donor.
California probate law provides that specifically bequeathed property--even if sold or transferred before the donor’s death--is still the property of the heir in certain situations. These include cases in which the donor sold the property and took back a deed of trust; in such instances, the deed and its proceeds belong to the heir. Insurance settlements from bequeathed property belong to the heir, as do eminent domain payments in the event the property is taken by the government.
From the facts you have presented, none of these situations appears to apply to your case. However, to be completely sure, talk to your family attorney.
Better yet, tell your husband that it’s time for both of you to update your wills. This should remove the source of your worry.
Fees for Managing a Retirement Account
Q: I have about $360,000 invested in an individual retirement account that is being managed for me by a professional service that is charging me a 3% annual fee. Is this fee deductible?
If so, must I pay it by separate check? Right now it is being deducted directly from my account. --R.L.
A: Your fee cannot be deducted if it is automatically charged against your account each year.
However, if you pay your fee separately, it is considered a miscellaneous deduction and is deductible only to the extent that it exceeds 2% of your adjusted gross income.
