What happens to jointly owned shares when I die?
IF YOU own shares jointly with your partner and one of you dies, the ownership of the shares needs to be confirmed.
When you buy an asset with another person, or a number of parties, the asset is considered to have been bought either as "joint tenants" or "tenants in common". You as the owners make the election at the time of purchase.
In the event of the death of a joint tenant, ownership will pass to the surviving owner without the asset forming part of the deceased's estate.
The surviving owner will be obliged to provide to the appropriate share registry a certified copy of the official death certificate to transfer title into the surviving joint tenant's name.
For property owned as tenants in common, on the death of one of the owners, the deceased owner's interest in the asset forms part of their estate and is dealt with in accordance with the terms of their will.
The share registry will require a certified copy of the official death certificate, a copy of the will and a copy of the Grant of Probate or Letters of Administration to transfer the title owned as tenants in common.
You can own shares jointly with an unequal interest, however, you would need to ensure that you have documented the ownership and declared income distributions in your tax returns to accurately reflect appropriate percentage ownership.
Are there capital gains tax (CGT) consequences on the transfer of share ownership?
Broadly speaking, a capital gain is calculated by taking the difference between the sale proceeds you receive and the cost base of the CGT asset. The cost base of a CGT asset is typically what you paid for it, together with some other costs associated with acquiring, holding and disposing of it.
For CGT purposes, joint tenants are treated as if they are tenants in common but owning equal shares in the asset.
For jointly owned assets originally acquired on or after September 20, 1985 the applicable cost base of the asset will continue to be the original purchase price (including transaction costs) paid.
Assets acquired prior to September 20, 1985 are generally exempt from CGT.
For assets originally acquired prior to September 20, 1985 the cost base of the interest you acquire will be set as the value of the asset at the time of their death.
While death itself will not trigger CGT, a capital gain will be assessed when the assets are sold by the estate, the beneficiary or the surviving joint owner. The tax liability is determined based on the relevant tax return of the owner disposing of the asset. Provided the assets have been owned for more than one year and are owned by individuals, 50 per cent of the gain made is taxed as income to the owner.
The key to managing capital gains is to keep good records of when assets were acquired, by whom, at what price and with what related costs. Likewise, for when assets are inherited and ultimately when they are disposed of.
Q&A with The Coach first appeared on www.wealthpartners.net.au. Any general advice in this story doesn't take account of personal objectives, financial situation and needs.