Separate Assets

[2B]

Getting those values considering all the splits, mergers, etc, would likely be impossible, or totally impractical. We can withdraw any fresh divies and or cap gains if needed, but selling the holdings would be a nightmare.
No need for the money, and any managing/rebalancing needing to be done can be handled using the generated income.
Assuming I die first, DW will get the whole stash with a stepped up basis.
Happy everything.

Historical stock prices exist so you can see what the price was on the day of her death. If you have been reinvesting the dividends that would make it more complicated.

I had a similar situation with a single stock in my FILs account. It was a meaningful amount of money but wasn't essential to pay for his care. I had made an estimate of the cost basis but he had acquired these shares at different times. I wouldn't have been real comfortable in an IRS audit so we just sat on the stock. He passed away and we sold right after transferring the shares to DWs and SILs Vanguard accounts. We sold immediately.

 

[Newventurer]

Joint accounts and ownership of everything, except of course the individual TSP/401K / IRAs. We funded the retirement accounts as a team with our pool of money. We've been married over 25 years. DH came into the marriage with more than me but graciously considered everything "ours" right from the beginning.

It works for us.

This describes my DW and I. Both were divorced and we were married 7 years ago. We decided from the beginning to share everything and pool all accounts (except 401k) which wasn't that hard as our assets were similar, though mine were growing faster due to salary and benefits. Maybe I was too lazy to go through the weekly/monthly effort of reconciling and reminding her about bills due. I do all the finances so that may have also made me more comfortable with the idea.

There are times of stress especially when dealing with each of our kids (college, weddings, etc) from prior marriages. It forces the discussion about what is fair and even. Some would call it stress and it is but it is also one of the things that 'glues' our commitment to each other.

I guess we can each choose what we fear to lose the most, in my case it's not the money.




Sent from my iPad using Early Retirement Forum

 

[JPatrick]

In your example the basis of the portfolio should have been stepped up on your mother's death based on date of death values. You could easily go back and get those prices and manage your portfolio properly.
Bruce

At the root of my problem (or nonproblem really) is the fact that from day one everything in this portfolio was jointly held with me.
When Mom passed the CPA said I could sell it but the basis would be set at when she bought it. Well no easy way to do it at the time, so in the drawer it went.
So now this portfolio contains gems such as this--In the sixties she invested $500 in "Public Service of Indiana," utility with big divie. It was taken over by another utility, then that one was taken over by another, then Duke Power bought the whole mess. Then Duk spun off SE to shareholders. DUK recently did a reverse split. Of course each of these happenings involved a change in share quantity and value.
So it's Warren Buffet stories like this spanning 55 years that makes the challenge what it is.
The good news? I am 100% content to let it ride, but for others maybe it's a record keeping warning.

 

[Gill]

At the root of my problem (or nonproblem really) is the fact that from day one everything in this portfolio was jointly held with me.
When Mom passed the CPA said I could sell it but the basis would be set at when she bought it.

Unfortunately, your CPA was dead wrong. As I understand it, your mother put the securities in joint name with you. When this is done with a nonspouse and the original owner dies, there is a 100% stepup in the basis to date of death values. Therefore, anything that took place before her death is irrelevant. If you have a schedule of the joint assets at her date of death and the values on that date, there is your basis.
Bruce

 

[flyingaway]

For those of you who keep separate assets, must you have a prenuptial agreement? Otherwise it does not matter what you agreed orally before, at the time of the divorce, everything should be divided at the 50%/50% line. It that right?

 

[athena53]

I've been through these discussion on several Boards (starting with theknot.com when DH and I were planning our wedding in 2003). No matter what system you have, it works if you're both on the same page and it won't work if you aren't.

First husband was financially irresponsible. We kept our finances separate but he spent everything he made and maxed out his credit cards, so when an emergency came up I was the only one with funds to pay for it. Not a happy way to live.

Second husband: totally different and very low-maintenance. He'll iron patches on his jeans rather than throw them out when they develop holes. We still have separate accounts but at the end of the month he hands over what he hasn't spent out of his SS and I figure out what to do with it. Before I retired we saved most of it. Now most of it goes for general living expenses. He's an Authorized User on my credit cards. I'm happy being the Financial Control Freak and he's happy that I deal with the money.


We did have an interesting discussion when he was preparing his will. He pointed out that if I died unexpectedly, he wouldn't have anything to his name except two cars and whatever is left in his checking account. Our solution was to re-title $25K of bond funds in my Fidelity account into a new account that's Joint Tenants with Right of Survivor. That would give him some breathing room while the paperwork is sorted out.

 

[2017ish]

I've been through these discussion on several Boards (starting with theknot.com when DH and I were planning our wedding in 2003). No matter what system you have, it works if you're both on the same page and it won't work if you aren't.

....

Amen and Bravo. This is one of the best (and most pithy) summaries I've seen on this recurring topic.

 

[jcretire77]

Thanks everyone for your replies. We do have a pre-nup. We have added each other in most cases to the others accounts. I still need to create a will (I know I am a slacker), but assuming that I kick it first would be happy for 95% to go to her and her two children. My two sisters have been just fine without any of my money.

Another question. With many people having separate tax deferred accounts do you both try to get to a similar AA? My wife is more conservative than me, but we end up at about 70/30 and very close to retiring. Still unsure whether to be more conservative for the next couple of years or let 'er ride. (I have a couple of years in cash if something hit the fan)

 

[2017ish]

...

Another question. With many people having separate tax deferred accounts do you both try to get to a similar AA? My wife is more conservative than me, but we end up at about 70/30 and very close to retiring. Still unsure whether to be more conservative for the next couple of years or let 'er ride. (I have a couple of years in cash if something hit the fan)

We treat everything as one portfolio for purposes of asset allocation. Especially with both of us still working, it enables us to avoid the nastiest choices in DW's 401k--and after we retire, my tax-preferred accounts are so much smaller than hers that it would be hard to execute the slice/dice allocation that we want if we didn't lump everything together.

 

[Big_Hitter]

We kept things separate for about 3 years after we got married (25th this year) - that's how long it took her to trust me.







She's been FIRED since 1997, or does it not count as a FIRE if I'm still working?

 

[rodi]

We were late to marriage game - both of us owned homes, and were middle aged (I was 37). We kept things separate at first... I even charged him rent when he moved into my house... but it matched, coincidentally (not) the rent he was getting on his house. (My house was in a better neighborhood - and the rent I charged was the same I'd charged a friend who shared my house for a few years.). We split the bills 50/50.

When we had the first kid, and followed in short order by moving across the country to my home town... we merged finances. We haven't looked back.

I keep my inherited IRA in my name. Our IRA/401k moneys are separate as well.

For asset allocation I treat it as one giant pool of money. He's much more conservative with asset allocation - so his IRAs are mostly CDs... that fills the cash bucket of our AA. We have a joint brokerage account, partly funded by inheritance... and partly funded when I felt our joint savings was full enough and swept some to the brokerage.

We have two credit accounts - with both of us on the account. He's primary on one, I'm primary on the other.

I pay all the bills. Do all the money transferring. Rebalance the portfolio as needed. I'm a control freak. He's happy to let me do the work.

 

[eta2020]

If you are FI and you are married since 20's to the same person then surely your spouse had done something right. In such situation I don't even understand concept of your and mine.

But if you are divorced and then married again at 50....yea I understand it.

 

[nuke_diver]

We are mostly separate since we also got married later and it didn't make a lot of sense to merge everything when we already had a system. As I plan for retirement we will probably need to do some rethinking. We have a joint acct but rarely use it. However without a paycheque coming every 2 weeks it might be easier to fund household payments through a joint acct

Neither of us are spenders so there isn't an issue with hiding things from each other. Generally we buy things that are needed. In the case of big items such as the recent remodel they are split but other things like cars...well there hasn't been a new car for 20yrs so not sure how that will work out

 

[haha]

I can see that people who had ugly divorces and are somewhat gun-shy would keep them separate.

In this case they should likely remain single.

Ha

 

[freebird5825]

In a perfect world without laws and gold-diggers of either gender, 2 people should be able to live together, married or single, and decide what they want to do financially.

Unfortunately, we do not live in a perfect world.

I am female, widowed, with modest assets. Mr B is divorced, with modest assets. He has kids, I do not. So we figured out what fits our live-in relationship in the state we reside in, without the laws interfering. It is a true partnership where no legislation can muddle up our lives.

Now THAT is true freedom.

Every situation is different. As long as a fair and equitable financial partnership exists, it's all good.

 

[Sunset]

I think there is an advantage to truly separate accounts.
Should one partner be sued/bankrupt, the other partners assets are untouchable.
Upon death, the capital gains are zeroed out for the inheriting partner, easy to understand.

Advantage of a joint accounts.
Full and easy transfer upon death (supersedes the Will), bit trickier for the capital gain zeroing (do you have to prove the % split ?, or is it enough to get joint on the account 1 day before death?).

 

[kimcdougc]

I married DH at the ripe old age of 19 he was 21. Knew each other 2 1/2 weeks. Going on 36 years. From the start, we have had everything joint. We literally started with nothing and have amassed a small fortune . DH always made more $ than me. That was our decision in the beginning when children came along that I would work part time and tend to all the home things and the kids. He would focus on school and his career. It has worked very well.


I have always paid the bills and done the financials in our house. Funny, DH retired last week and all of a sudden chiming in on finances. I am like....stop right here. You always know what is going on but don't think after me doing the finances for 36 years that you are going to start to rain on my parade. (I really like doing our finances and think if I wasn't in control of them I would go nuts.) Anyway he got the message...you can look and give advice but I am in charge.


If something happened to us, I would definitely have separate accounts etc.

 

[2017ish]

I think there is an advantage to truly separate accounts.
Should one partner be sued/bankrupt, the other partners assets are untouchable.
Upon death, the capital gains are zeroed out for the inheriting partner, easy to understand.

Advantage of a joint accounts.
Full and easy transfer upon death (supersedes the Will), bit trickier for the capital gain zeroing (do you have to prove the % split ?, or is it enough to get joint on the account 1 day before death?).

The highlighted statement may be less true than many think, depending upon the state, in case of a lawsuit. Old exceptions like "family purpose doctrine" may still bite, and fault can always be spread.... (Mr. X, why did you let your spouse drive home from the bar when you had to help him/her find the driver's door of the car?)

In any event, retirement accounts and, depending upon structure/state, the spouse's share of homestead, are essentially untouchable if you play by the rules. (We did manage to take a couple's IRAs and their closely-held company's pension plan a few years ago, but they grossly violated the self-dealing rules, among others.)

 

[flyingaway]

I still do not understand why the separate account practice can hold water at the time of divorce, if there is no written prenuptial agreement. At divorce with the help of lawyers, most people become insane.

 

[athena53]

I pay all the bills. Do all the money transferring. Rebalance the portfolio as needed. I'm a control freak. He's happy to let me do the work.

That's us, too. DH has his own checking account where his SS is deposited and whatever he spends out of that is his own business. (Every month he hands over what's left in it to me and I use it for our expenses.) We've been married almost 12 years and it's worked very well. He knows what we have in investments and generally what it's in, but doesn't want much involvement other than that.

A caution to those of you who think that you're immune from a spouse's creditors if you have separate accounts: when I was married to my extremely irresponsible first husband, he had some big medical bills that he didn't bother to pay or to submit to the insurance. I knew he was getting nastygrams in the mail and he said he'd take care of them. In my heart I knew he wouldn't, but I was busy holding down the only job in the family, trying to pay the other bills and trying to keep our kid sane in a dysfunctional household.

One day my manager called me in and showed me a Wage Garnishment Notice from the local hospital. Yes, they were going to attach my wages for my husband's debt. We were separated and in the process of divorce by then and my attorney fought them off. Eventually I submitted the claim to my insurer (they paid despite the late notice) and the hospital was paid in full from that and his share of the equity in the house.

The next year the hospital called and wanted me to contribute to their capital campaign.

 

[bizlady]

I have a joint account which we have funded proportionately to our income

We also are everything joint. But I think proportionate contributions to income is the most fair when accounts are separate. In retirement, if we had separate accounts, we would do the same thing.

For women in particular who usually have lower income and savings, this is important. If "he" also has children who would inherit upon death, then she would have even less to live on should he pass first.

 

[PhrugalPhan]

A caution to those of you who think that you're immune from a spouse's creditors if you have separate accounts: when I was married to my extremely irresponsible first husband, he had some big medical bills that he didn't bother to pay or to submit to the insurance. I knew he was getting nastygrams in the mail and he said he'd take care of them. In my heart I knew he wouldn't, but I was busy holding down the only job in the family, trying to pay the other bills and trying to keep our kid sane in a dysfunctional household.

One day my manager called me in and showed me a Wage Garnishment Notice from the local hospital. Yes, they were going to attach my wages for my husband's debt. We were separated and in the process of divorce by then and my attorney fought them off. Eventually I submitted the claim to my insurer (they paid despite the late notice) and the hospital was paid in full from that and his share of the equity in the house.

Interesting. Did you ever sign anything when he was admitted to the hospital?

My irresponsible Ex-Wife racked up lots of bills on credit cards, but those never made their way back to me. Even her college loans didn't come back to haunt me (though I still get letters addressed to her every few months for these). Though at the time I must have known better - I refused to sign any paperwork at the college for her loans. I told them any loans were between her and the school and walked out of the room. Surprisingly, she never held that against me, nor even asked me why I did that.

 

[ERD50]

At the root of my problem (or nonproblem really) is the fact that from day one everything in this portfolio was jointly held with me.
When Mom passed the CPA said I could sell it but the basis would be set at when she bought it. Well no easy way to do it at the time, so in the drawer it went.
So now this portfolio contains gems such as this--In the sixties she invested $500 in "Public Service of Indiana," utility with big divie. It was taken over by another utility, then that one was taken over by another, then Duke Power bought the whole mess. Then Duk spun off SE to shareholders. DUK recently did a reverse split. Of course each of these happenings involved a change in share quantity and value.
So it's Warren Buffet stories like this spanning 55 years that makes the challenge what it is.
The good news? I am 100% content to let it ride, but for others maybe it's a record keeping warning.

Unfortunately, your CPA was dead wrong. As I understand it, your mother put the securities in joint name with you. When this is done with a nonspouse and the original owner dies, there is a 100% stepup in the basis to date of death values. Therefore, anything that took place before her death is irrelevant. If you have a schedule of the joint assets at her date of death and the values on that date, there is your basis.
Bruce

MBMiner, this didn't sound right to me (bolded part). I googled, and the first three hits said the same thing:

If the stock was held in a joint account with someone NOT your spouse, the stepup to fair market value at the date of death applies only to the portion of the joint property contributed by the decedent (the person who died.)

However, assets held in joint tenancy title receive only a partial step-up in basis, on the decedent’s share. If the decedent owns the asset alone, the basis of the entire asset will be stepped-up.

On first reading, I thought that meant 50-50, half would be stepped up, half would not. But now I'm not sure of that wording 'contributed by the decedent', and 'the decedent’s share'? Does that mean, if JP's mother put 100% of the assets in the account, that 100% of the assets are stepped up? Or does it mean that if they were 50/50 owners of the account, that 50% of the assets are stepped up?

And if it was held jointly by three people, then 33.3% would be stepped up?

An example in those links would have helped - I find 'legaleze' to be too convoluted and imprecise.

Can anyone provide a link to clear this up?

EDIT: Updating my own post here -

http://finance.zacks.com/taxation-stock-after-date-death-4767.html

For both federal and state capital gains tax purposes, stock owned jointly with a deceased owner other than a spouse is handled based on the proportion of the original investment made by the deceased. For example, if the deceased made 40 percent of the original investment in the stock, 40 percent of the cost basis is stepped up or down to the price on the date of death.

So it seems, if JP can show that 100% of the assets were made by the decedent, then 100% should be stepped up. Make sense?

-ERD50

 

[athena53]

Interesting. Did you ever sign anything when he was admitted to the hospital?

My irresponsible Ex-Wife racked up lots of bills on credit cards, but those never made their way back to me. <snip>

No, I never signed anything. I believe it had to do with the fact that medical care is an essential service so the spouse can be held liable. My Ex also had a few maxed-out credit cards that were his problem and not mine. I suppose that if they'd been used to buy furniture, clothes for our son, or family vacations one could have argued they were partly my responsibility, but they were mostly high-end clothing and fishing equipment for him.

 

[Big_Hitter]

My philosophy is to make everything as easy as possible for my wife (but no easier) if I predecease her; hence everything is in a joint account.