There has always been a tradeoff between JTWROS and probate -- with JT, you avoid the probate process, there is no question as to who gets the property, but you only get a step-up on the fractional percentage owned by the decendent.
With *spouses* you get the 50%. With others you get the proportion of contribution. You also have to figure the gift tax/estate tax issue for large estates where JTWROS does not help because of IRC 2040 as it includes it in the estate of the original owner.
Although the case had to do with spouses (and a timing issue regarding the change in 2040 related to creation of the tenancy and the death of one of the spouses), in Hahn v. Commissioner, 110 T.C. 140 (1998) the current law was discussed:
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Section 2040 governs the value of jointly-owned property to be included in a decedent's estate. Before 1977, section 2040 5 provided that the gross estate includes the value of all property held at the time of a decedent's death by the decedent and another person in a joint tenancy or tenancy by the entirety, except such part of the entire value that is attributable to the amount of consideration in money or money's worth furnished by such other person. Thus, the rule established a "contribution test", whereby the estate of the deceased joint tenant must generally include the value of the entire property less the portion of the property attributable to the consideration furnished by the surviving joint tenant. The statute creates a rebuttable presumption that the value of the entire property is includable in the deceased joint tenant's estate, and the burden of showing original ownership or contribution to the purchase price by the surviving joint tenant falls upon the estate. Estate of Heidt v. Commissioner, 8 T.C. 969 (1947), affd. per curiam 170 F.2d 1021 (9th Cir. 1948); Estate of Balazs v. Commissioner, T.C. Memo. 1981-423, affd. without published opinion 693 F.2d 134 (11th Cir. 1982).
In 1976, subsection (b) of section 2040 was added to the Code by section 2002(c)(1) of the Tax Reform Act of 1976 (TRA 76), Pub. L. 94-455, 90 Stat. 1520, 1855. 6 The 1976 amendment created a special rule where the joint tenants were husband and wife. If the interest was a "qualified joint interest", 7 only one-half of the value of the property owned in joint tenancy was includable in the decedent's gross estate, without regard to which spouse furnished the consideration to acquire the jointly held property. 8 TRA 76 sec. 2002(d)(3), 90 Stat. 1856, provided an effective date for the new 50-percent inclusion rule of section 2040(b), making it applicable to "joint interests created after December 31, 1976."
Congress amended section 2040 again in 1978, with the addition of subsections (c), (d), and (e). Revenue Act of 1978, Pub. L. 95-600, secs. 511(a) and 702(k)(2), 92 Stat. 2763, 2881, 2932. Essentially, these subsections provided a mechanism whereby an election could be made to treat joint interests created prior to 1977 as "qualified joint interests" subject to the 50-percent inclusion rule of section 2040(b).
The final relevant amendment to section 2040 took place in 1981. Subsections (c), (d), and (e), which had been adopted in 1978, were repealed. Economic Recovery Tax Act of 1981 (ERTA), sec. 403(c)(3), Pub. L. 97-34, 95 Stat. 172, 302. The definition of a "qualified joint interest" in section 2040(b)(2) was redefined to eliminate the requirement that the creation (or recreation) of the joint interest be treated as a gift. 11 ERTA sec. 403(c)(1); 95 stat. 301-302. However, the operational provision of section 2040(b)(1), providing for 50 percent inclusion, was not changed. The effective date provision of the 1981 amendment made these changes applicable "to the estates of decedents dying after December 31, 1981." ERTA sec. 403(e)(1), 95 Stat. 305.
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