Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, March 1, 1993 TAG: 9302260169
SECTION: BUSINESS PAGE: A-8 EDITION: METRO
SOURCE:
DATELINE: LENGTH: Long
OPTIONS FOR THOSE SUBJECT TO ESTATE TAX
Q: I have seven children and seven $10,000 CDs at a bank. Each is listed in my name and my Social Security number, but each is "payable on death" to one of my children.The bank said that, when I die, the certificates will pass directly to the named child without going into my estate. Does this mean that the $70,000 will not be taxed as part of my estate? I understand that I can give each child an annual gift of $10,000.
A: C.J. King, a certified public accountant with the Roanoke firm of Cole & King, said that as a general rule you are not required to file an estate tax return, or to pay estate taxes, if your assets, life insurance proceeds and gifts over $10,000 during your lifetime are less than $600,000.
If you are required to file an estate tax return because your estate is more than $600,000, King said, the certificates of deposit in your name will be included as part of your taxable estate. The "payable upon death" designation only determines where the funds will be distributed after you death. It does not constitute a gift during your lifetime because it will not go to your children until after your death.
If you are subject to estate tax, King suggested one of two options.
The first, he said, is to give the CDs to the children now to avoid the estate tax. Estate tax rates begin at 37 percent and go as high as 55 percent.
If you want to keep the money, your second option is to place the CDs in a trust where you would give up all incidents of ownership. This would exclude the CDs from your estate. The trust could be set up to allow you to receive the income from the CDs and distribute the principal to your children when you die.
If you are not subject to the tax, you need not take any action. But you should not, however, give away money on which you rely for financial security.
Stock of no value
Q: I retired from Mason & Dixon Lines in Roanoke. The company sold out to another trucking company that went bankrupt. When all was through, Mason & Dixon Lines sent me 1,460 Class B preferred stock series I of Mason & Dixon Lines Inc. with a value of $1 each share. I would like to sell or trade it back to the company, but I cannot find anybody to help. They owed me $3,800 I never got.
A: The stock they sent you apparently has no current value. Both the Roanoke office of A.G. Edwards & Co. and its headquarters in St. Louis researched the company and reported they could not locate any public market where your shares might be sold.
Mason & Dixon Lines Inc., is not listed in various directories of corporations. Nor is there a phone listing for the company in Sterling Heights, Mich., the return address you have.
Mason & Dixon lines went out of business in Roanoke in December 1984 after sale to a Michigan company, reorganization in bankruptcy and a strike that lasted more than three months.
A company in Warren, Mich., carries a similar name, Mason & Dixon Inc. Gerald West, a spokesman for that company, said it is under completely different ownership following the bankruptcy.
West said that your shares were issued by the bankruptcy court. If you read the back of the certificate, West said, you will find that your shares are redeemable by the company in the year 2006. They will be worth $1 a share (or $1,460 in your case) in 13 more years - if the assets are there at that time.
Unfortunately, any assets are only as good at the entity that guarantees them.
Owner must prove good faith
Q: I am a widow, 66 years old. I lived in an older house which was purchased by my husband and me in 1968. After my husband's death in 1986, I bought a newer house and moved into it three years ago. I have not been able to sell the older house although it is rented.
I had counted on using my lifetime capital gains exemption when the older house was sold. Recently I read that I had to have lived in the house for three out of the last five years in order to use this exemption.
Could you tell me of some way that I could avoid paying a large amount of tax in capital gains when the older house is sold? Is it possible that the market value at the time of my spouse's death would be the base?
A: Your husband presumably owned half of the house. The tax basis of his share would be the value at the date of his death, but the tax basis of your half would be the original purchase price plus improvements.
The Internal Revenue Service sometimes makes an exception in cases where a former primary residence is rented because it cannot be sold. The burden of proof, however, will be on you to prove a good-faith effort to sell the property. You would have to document the house was actually on the market.
Don't forget that the government will reclaim any depreciation you have taken on the rental house at the time of such a sale.
You should consult a tax professional, such as a certified public accountant, to review your situation in connection with this house.
Mag Poff covers banking and finance for the Roanoke Times & World-News. She will help find answers to your personal finance questions. Send them to her at the Roanoke Times & World-News, P.O. Box 2491, Roanoke, Va. 24010.