@hntrust wrote:
Thanks about the reminder for a gift tax return. Isn't the gift tax exclusion equal to the estate tax exclusion? I also posted my original post here on a Facebook group. A well known estate planning attorney responded:
"There are many reasons not to add a joint owner, so she probably got poor advice in that regard. However, the basis isn't one of them. The entire property will be included in her estate under Section 2040(a), https://www.law.cornell.edu/uscode/text/26/2040, so that he'll get a new basis."
I'm going to give up here.
I've found some documents (from internet sources with more or less credibility) that discuss IRC section 2040 in combination with section 1014. They are not all on point (many deal with spousal transfers). But it appears that section 2040 and section 1014 work together to say that, if the joint tenants paid for their shares, the basis of the survivor's share is not adjusted and the basis of the share they inherited is stepped up. But if one of the joint tenants paid zero for their share (i.e. it was a gift), then the entire property receives a stepped up basis.
There is also an obscure example in publication 551 that seems to support this argument, although it is hard to interpret.
Some sources also seemed to suggest that inheriting a property under JTWROS triggers a requirement to file a gift tax return at the time of the giver's death, rather than when the joint tenancy was established by deed.
As this contradicts a lot of what I have believed over the years, I need to declare my ignorance and send you (or your son-in-law) to an attorney. I still think that, even if the son would receive a fully stepped up basis under the current arrangement, there may be other benefits to modifying the arrangement after appropriate elder law and financial planning.
