Joint ownership between an elderly parent and a middle-aged son or daughter may pose a tax trap. If you’re named joint owner of your mother’s bank or brokerage account and you withdraw cash or securities, that act will be treated as a taxable gift. Gift tax returns will have to be filed and gift tax might have to be paid; after a gift is deemed to have occurred, you’ll owe tax on all income and capital gains from the property withdrawn from joint tenancy.
Moreover, you’ll lose your basis step-up in the property you withdraw. Say your mother owns stock with a basis of $10,000 and current value of $25,000. If you inherit that stock, your basis will be $25,000 but if you withdraw that stock your basis will be $10,000–you’ll owe tax on a $15,000 gain if you sell the withdrawn shares for $25,000.
The exception to the above pitfalls: there’s no taxable gift if you withdraw assets to pay for your mother’s expenses. Therefore, if an elderly relative has named you joint owner of any property, keep records to show that any funds you withdraw are being used on behalf of the original owner, not yourself.
