The Joint Tenancy Trap

Scott Wait, CPA and President of RSW Wealth Management, began his podcast “Money Tips and Traps” by discussing an estate planning trap he calls the Joint Tenancy Trap. He clarified that the information shared is for educational purposes only and not intended as investment, accounting, legal, or tax advice.

Joint Tenancy vs Trust Planning

Mr. Wait explained the concept of the “Joint Tenancy Trap,” highlighting the difference between holding assets in trust versus joint tenancy. He noted that in a trust, all assets are adjusted to fair market value at death, potentially increasing the value and eliminating income tax for survivors, whereas in joint tenancy, only the deceased’s portion is adjusted. Scott provided an example of a father and daughter owning a commercial property, illustrating how adding the daughter as a joint tenant could affect the asset’s value if the father were to pass away.

Tax Implications of Joint Tenancy

Scott explained the tax implications of a joint tenancy property, noting that while one portion adjusts upward and is no longer subject to tax, the other portion would result in a $4 million taxable gain for the daughter at 20% minimum tax rate, potentially reaching $800,000 in total income tax. He advised consulting with estate planning attorneys, CPAs, and investment advisors on such tax planning matters and mentioned that RSW Wealth Management professionals work on these tax planning issues for their clients on a regular basis in addition to providing financial-science based wealth management to build and protect our client’s nest eggs.

Mr. Wait mentioned the next podcast will outline an example of the California income tax burden on taxpayers with income of $10 million.

Scott concluded by inviting listeners to schedule complimentary meetings with RSW Wealth Management professionals to discuss wealth management and tax minimization regarding income tax, estate and gift tax planning strategies.