Dear Len & Rosie,
My aunt passed away in January. She had established a trust in 2002 but she failed to transfer some joint tenancy stock holdings into the trust before her death. We always intended for those stocks to become part of the trust. I am both the surviving joint tenant and the trustee of the trust and I want to transfer ownership of those stocks into the trust before distributing the assets, but I am getting conflicting advice about the legality of doing that. My stock broker says, “Fine. No problem. Just fill out the transfer documents.” But my attorney and CPA have told me that such a transfer either can’t be done or isn’t legal to do.
Trusts, for the most part, are not public documents. As long as your aunt’s taxes and debts are paid, and as long as you make the trust beneficiaries happy, then you probably can simply transfer your aunt’s joint tenancy stock into her trust and then divide the stock up in the manner provided for in the trust instrument. Doing this is not illegal. It is not a crime, and it won’t get you sued by the trust beneficiaries because they’ll get a share of the stock instead of it all going to you.
But there may be some complications. Suppose you are disabled. Since the joint tenancy stock belongs to you as your aunt’s surviving joint tenant, if you make a gift of the stock into her trust, you could be subject to transfer penalties for Medi-Cal and SSI benefits.
Or maybe you’re rich. If you are worth anywhere near the amount that passes free of Federal Estate Tax on death ($5,450,000 for 2016), then if you gift what is now your stock into your aunt’s trust then you will have made a gift to an irrevocable trust that will be subject to gift tax, payable by you, which could increase the amount of federal estate tax payable to the government upon your own death.
The way around these problems is to petition the court seeking an order declaring that your aunt’s stock doesn’t belong to you, but belongs to the trust instead. Under California’s joint tenancy law, the stock was 100% your aunt’s property, assuming she acquired the stock and added you to the title later. And if your aunt listed these stocks on the Schedule of Trust assets attached to her trust document, then she effectively assigned her stock to the trust, despite never having transferred title to herself as trustee.
There may be other complications that can make it a bad idea for you to transfer the stock to the trust, either with or without a court order, so if you want a real second opinion, this column isn’t enough. You need to sit down with a trusts and estates attorney and review your aunt’s stock and her estate plan to make sure that funding the stock into the trust won’t create complications for yourself.
Len & Rosie
Dear Len & Rosie,