If transferring stock to a joint brokerage account co-owned by anyone but your spouse, be wary of triggering the gift tax. The Internal Revenue Service (IRS) defines gift as "Any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money's worth) is not received in return." Giving a non-spouse equal ownership of a stock account over the IRS gift-tax limit would incur this tax, payable by the giver.
As of the time of publication, the IRS imposes a gift tax on any amount given to an individual over $13,000, other than a spouse. This gift limit is per person, so a parent with three children could give each child the maximum amount, for a total of $39,000 without incurring the tax, and the other parent could do the same. However, a parent giving one child joint-ownership in a stock account worth $39,000 means the parent would pay tax on $26,000 of that gift.
Gift Tax Exceptions
The IRS generally permits exceptions on certain types of gifts over the annual exclusion limit, although not transferred stock to joint accounts. However, depending on the reason for the gift, there may be other ways to provide the benefit without triggering the tax. If you pay medical expenses or tuition for another person, the gift is excluded. All spousal gifts are excluded. You may also give to qualifying charitable organizations and deduct the value of the contribution. You may give a gift to a political organization but the amount is non-deductible.
The IRS admits that its rules concerning gift taxes, and related estate taxes, are among the agency's most complicated. It advises that anyone considering transfers above the exclusion limit consult with a tax or estate attorney or certified public accountant to discuss the tax implications of the action. The professional may be able to advise you on alternative methods of making the gift, especially if it involves overall estate planning.
Transfer on Death Registration
One way to avoid the gift tax, as well as probate, is the transfer on death registration. This method of registering the account allows the owner complete control of the assets while alive, but upon death the registered beneficiaries receive the assets. This may be preferable to joint account ownership in cases where the owner wants to ensure that the other person eventually receives the assets. Depending on the amount of assets, state and relationship to the decedent, no inheritance taxes may be due when the beneficiary receives ownership of the brokerage account.
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