Joint Tenant in a community property state

[fh2000]

I am in California, a community property state. I am doing some research on how my house title, and joint brokerage account can be designated. I do not have a trust yet. All my house and accounts have TOD/POD and beneficiaries. But, I would like to change the designations first.

Currently, both are designated as 'Joint Tenant'. I understand that if one of us dies first, the value of the house, and joint brokerage account will have 1/2 of the step up basis modified.

There is a way to change our house title, to show 'Community Property with Right of Survivorship'. We plan to do that soon. With this designation, if one of us dies, the whole value of the house base will be stepped up.

With the Joint brokerage account in Charles Schwab, looks like they can also change with a letter of authorization signed by both owners. The whole account will have step up value if one of us dies.

Has anyone done this?

 

[cathy63]

I am in California, a community property state. I am doing some research on how my house title, and joint brokerage account can be designated. I do not have a trust yet. All my house and accounts have TOD/POD and beneficiaries. But, I would like to change the designations first.

Currently, both are designated as 'Joint Tenant'. I understand that if one of us dies first, the value of the house, and joint brokerage account will have 1/2 of the step up basis modified.

There is a way to change our house title, to show 'Community Property with Right of Survivorship'. We plan to do that soon. With this designation, if one of us dies, the whole value of the house base will be stepped up.

With the Joint brokerage account in Charles Schwab, looks like they can also change with a letter of authorization signed by both owners. The whole account will have step up value if one of us dies.

Has anyone done this?

Have you asked Schwab what will happen to your current joint account when one of you dies? I have done a lot of tax returns for surviving spouses in California and I have never seen a brokerage statement where they didn't step-up the basis of the entire joint account. If the money used to acquire the assets belongs to both of you, then it's community property and gets a full step-up, even if it's titled as JTWROS. I don't see a need to retitle it if they're going to do what you want anyway.

We always treat a house sale as if it were fully stepped-up on the date of death for the same reason, though sometimes establishing the value on the date of death is difficult since our property tax assessments don't reflect FMV. The best thing you can do as a couple is make sure the surviving spouse knows to get an appraisal done in the first few months.

Basis will never be an issue unless the IRS audits the surviving spouse's return for the year they sell the house. The IRS will always accept the brokerage statement as showing the true basis for investments, so the only thing they might ever ask about is the house.

 

[fh2000]

Thanks again, Cathy. You always have all the answers for my current and prior questions. I really appreciate your expertise and effort.

The internet could be confusing and ambiguous at times. Looks like I really do not have to do anything with my Joint Tenants designations. I will check with Charles Schwab exactly what they do if one of us dies first.

 

[fh2000]

I found the IRS document that spells out using total FMV as Cathy mentions:

Publication 555 (03/2020), Community Property
https://www.irs.gov/publications/p555#en_US_202001_publink1000168816

Death of spouse. If you own community property and your spouse dies, the total fair market value (FMV) of the community property, including the part that belongs to you, generally becomes the basis of the entire property. For this rule to apply, at least half the value of the community property interest must be includible in your spouse's gross estate, whether or not the estate must file a return (this rule doesn't apply to registered domestic partners).

There is no mention of how property is titled, as long as the decedent owns >= 50% of the asset.