TOD & POD accounts

[curiousgeorge]

Hello!

Are TOD & POD accounts part of estate? Impact on estate and inheritance taxes?

Thanks!

[Ombud]

Yes they are but they are outside probate. Estate pays tax if due. You can also inherit investment losses! Get the $$ and a write-off

[mwcpa]

"You can also inherit investment losses!"

No you cannot.....there is no carryover basis upon the passing of a person....

Assets are stepped up or down to the FMV upon the passing of a person.

If A had 100 shares of XYZ company that they paid 1,000,000 to acquire held POD/TOD for B.  They pass away with the shares worth 250,000.  The 750,000 "unrealized" loss is lost.  B would inherit XYZ with a tax basis of 250,000.

If A had 100 shares of XYZ company that they paid 1,000,000 to acquire held POD/TOD for B. They gift the shares worth 250,000.  If B immediately sells the shares for $250,000 the "loss" is lost.

IRS publication 550 (emphasis added)
"Fair market value less than donor's adjusted basis. If the fair market value of the property at the time of the gift was less than the donor's adjusted basis just before the gift, your basis for gain on its sale or other disposition is the same as the donor's adjusted basis plus or minus any required adjustments to basis during the period you hold the property. Your basis for loss is its fair market value at the time of the gift plus or minus any required adjustments to basis during the period you hold the property. "

[ej401]

Thank you very much Ombud and MW!

[Ombud]

Misstepped. We inherited property. By the time we sold it (6 months later), we were down 25k. 5k each. Then by the time the trust was divested (all mutual funds & CDs but passed to us 'as is'), we each got another write-off 7.5k due to losses in the trust. Did the CPA make a mistake?

[mwcpa]

"Did the CPA make a mistake?"

probably not.... it would depend how the trust was funded....

if the trust was not part of the "taxable estate" then the assets would not get a step up or step down in your case.... but, if the truist was funded with assets of the estate the "basis" to the trust is the FMV on th date of passing....

A TOD/POD account is part of the persons potential taxable estate and would get step up or step down...

[Ombud]

Trust was funded in 2000. Dad died in 2003, mom in 2012. I inherited in 2012

[mwcpa]

so, it was probably correct ombud.... it was probably not part of Mom's estate.... so cost could have gone back to carry over from assets transfered in at funding in 2000.

[Ombud]

Income + write-off =

Would give it all back in a heartbeat to have them here

Stocks / CDs bought with proceeds from trust property sale in 2004. Estate then sold 1 house & bought another in 2006 for 650k, sold for 415k in 4/2013, stepped down value to what it was worth 10/12. Which is why we pay CPAs

[ej401]

Read in an article someplace a while back that FDIC insurance can be more than $250K for POD savings accounts - is this correct?
Thanks.

[mwcpa]

try this link to test your FDIC coverage

www.fdic.gov/edie/index.html

"FDIC insurance covers all deposit accounts, including checking and savings accounts, money market deposit accounts and certificates of deposit. The standard insurance amount is $250,000 per depositor, per insured bank, for each account ownership category."  (from FDIC website)

[ej401]

Thanks MW. 

The estimator did not seem to work; did not include POD accounts. However, from the FAQ link, www.fdic.gov/edie/index.html, obtained below info.

Revocable trust accounts: Each owner is insured up to $250,000 for each unique eligible beneficiary named or identified in the revocable trust…This ownership category includes both informal and formal revocable trusts: Informal revocable trusts — also known as payable on death (POD), in trust for (ITF), testamentary, or Totten Trust accounts — are the most common form of revocable trusts.

Deposit insurance coverage for revocable trust accounts is provided to the owner of the trust. However, the amount of coverage is based on the number of beneficiaries named in the trust…

For an example, I understand above to mean:
1. John Doe has a $500k POD account with 2 daughters as beneficiaries; John Doe’s account is fully FDIC-insured because coverage is based on 2 beneficiaries at $250K coverage for each beneficiary.
2. However, If John Doe’s POD account is for a $750k, he would only be insured for $500k; remaining $250K, uninsured.

Did I understand correctly?

[Deleted]

ej, I don't think that is correct.  My bank had me set up 2 separate accounts (one beneficiary on each) to realize the higher FDIC protection.  They needed to be separate accounts to qualify for the coverage according to them.  

[ej401]

The way I interpret the info at www.fdic.gov/edie/fdic_info.html, looks like multiple accounts by one owner are added together and insured in the aggregate.  IF my interpretation is correct, even if different POD beneficiaries but same owner, insurance protection is still for the owner although calculated on beneficiaries.
    Account A -  John Doe, $300K POD, Beneficiary 1.
    Account B -  John Doe, $300K POD, Beneficiary 2.

   Each account would be insured for $250K.

Thoughts anyone?  Am I understanding the FDIC info correctly?  Thanks.

[mwcpa]

ej.... I believe that in the case you note... the 600K in bank A would be insured for up to 500K.... 250 for Beneficiary 1 and 250 for Beneficiary 2........I could be wrong as I am no expert on FDIC insurance coverage.

I did a test of the EDIE system using 600K and 2 named beneficiaries.... results were... 500K covered, 100K is uninsured and potentially at risk.....

[ej401]

Thanks MW!