Reply To: Taxable Investment Account Jointly Owner

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Alan S.

Hi, Tom. You are correct. But the last paragraph below poses an interesting question.

If the surviving spouse inherits a “qualified joint interest”, their basis is the original cost basis of half the property and the DOD cost basis of the other half (the half they inherited). It does not matter which spouse made the purchases. If the account was community property in a community property state, the entire value receives the basis adjustment.

In many brokerages, the couple could name a TOD beneficiary while both living, that would allow transfer to that beneficiary upon the second death or common disaster. However, VG inexplicably will NOT accept such a TOD on a joint account. Therefore, the surviving spouse should quickly name their own beneficiary on the account at the same time the account is retitled in that spouse’s name.

One issue that all the IRS Pubs gloss over is holding period. Of course, inherited assets always have a LT holding period, but what the Pubs do not confirm is the holding period for the survivor’s interest in qualified joint property that was purchased just before the death of the first spouse. The surviving spouse’s share that was owned all along does not get a basis adjustment, but does it get a holding period adjustment to LT or does it actually have to be held 1 year before it gets LT treatment? Most likely tax preparers routinely report all such sales by the surviving spouse as LT, but I do not know if that is technically correct for this example?

Anyone have cite on this?