Idaho Law Change for Married Persons’ Estate Plan To Save Taxes [1]
Do you and your spouse hold a joint brokerage account that is titled “Jack and Jill Hill, Joint Tenants With Rights of Survivorship (JTWROS)”? You may want to change the title to be “Jack and Jill Hill, Community Property, With Rights of Survivorship (C/P WROS)”.
Why bother? Effective July 1, 2015, Idaho has a new law that provides a way to title brokerage, stocks, bonds and other accounts that were previously titled as JTWROS accounts. It is all about ways to minimize capital gains taxes.
A capital gains tax is paid when an asset is sold for more than the original purchase price. For example, if a stock was purchased for $10 a share (the “basis”) and sold for $100 a share, there is a gain of $90, and a capital gains tax is paid based on the $90 increase. The “basis” is reset to the date of death value upon the death of a single person. That means if the stock is worth $100 per share at the date of death, the new “basis” for capital gains purposes is $100, no matter if the purchase price was $10. If the person inheriting the stock sells it for $120, their basis is $100, and they have a gain of $20, so the capital gains tax only applies to the $20.
For married couples in Idaho, both halves of any community property receive a new “basis” for all of the assets held in an account if that account is community property.
However, upon the death of the first spouse, a JTWROS account will be considered as belonging one-half to the deceased spouse and one-half to the surviving spouse. Under the Internal Revenue Service (IRS) tax laws, only the one-half that belongs to the deceased spouse will get a new tax “basis” equal to the value of those assets as of the death of the first spouse to die ($100 per share), the one-half belonging to the surviving spouse will still have the original “basis” value ($10 per share in this example).
If a married couple desires to terminate the JTWROS status of their community property so they can get the 100% increased value of the “basis” on the death of the first spouse, they must sign a document that states their intent to terminate the survivorship right, describe the property affected, and take other formal steps.
Your next step? If this applies to you, I encourage you to talk to your attorney, Certified Public Accountant or Financial Planner to coordinate your asset titles with your estate plan.
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[1] Idaho Code Section 15-6-403 and 15-6-404
