[Tumeric]

I have an account with Dad for around 100K. Can I withdraw the $ without paying additional taxes?

I understand the once per year 12K tax free gift to each of my family members but I would like to take a lump sum. My name has always been on this account with him.

[JudyKayTee]

I have an account with Dad for around 100K. Can I withdraw the $ without paying additional taxes?

I understand the once per year 12K tax free gift to each of my family members but I would like to take a lump sum. My name has always been on this account with him.

I'm a little confused - it's a joint account? What kind of account? If it's a joint account I don't see that it's a gift to you.

[Tumeric]

I'm a little confused - it's a joint account? What kind of account? If it's a joint account I don't see that it's a gift to you.

The account is a "Joint Savings Account." All the funds came from my Dad. Thank you for helping me!

[JudyKayTee]

The account is a "Joint Savings Account." All the funds came from my Dad. Thank you for helping me!

I'm curious to see what a tax person has to say but if it was opened in both names, it's your money and I don't see that gift tax enters into it.

[MukatA]

If it is your dad's money, then it is his money. He can gift you $12,000 without filing gift tax return, and if you are dependent, he can meet your living expenses.

[JudyKayTee]

If it is your dad's money, then it is his money. He can gift you $12,000 without filing gift tax return, and if you are dependent, he can meet your living expenses.

Could you clarify this for me? It's in a joint account. When you open a joint account no one asks which person is contributing what percentage of the money.

But then you are tied into a gift giving, taxable situation when either party tries to withdraw some of the funds?

[ScottGem]

If the account was opened as a joint account, it may be that your dad had to pay gift tax on the funds WHEN DEPOSITED. But since your name has always been on the account then the money is yours and you will not owe a gift tax. In anycase gift taxes are paid by the donor not the receiver.

[IntlTax]

For purposes of the Federal gift tax, the creation by Dad of a joint bank account for himself and Son, or a similar type of ownership by which Dad can regain the entire fund without Son's consent, does not constitute a completed transfer from Dad to Son until Son draws upon the account for his own benefit without any obligation to account for a part of the proceeds to Dad. Section 25.2511-1(h)(4) of the Gift Tax Regulations.

Note that the annual gift tax exclusion increases to $13,000 in 2009.

[JudyKayTee]

For purposes of the Federal gift tax, the creation by Dad of a joint bank account for himself and Son, or a similar type of ownership by which Dad can regain the entire fund without Son's consent, does not constitute a completed transfer from Dad to Son until Son draws upon the account for his own benefit without any obligation to account for a part of the proceeds to Dad. Section 25.2511-1(h)(4) of the Gift Tax Regulations.

Note that the annual gift tax exclusion increases to $13,000 in 2009.

What determines that Dad created this joint bank account as opposed to simply opening a joint account - ?

Either party can totally withdraw funds from a joint account. Why would this account be taxable?

For example, I have a joint account with my Grandmother. She can withdraw from it; I can withdraw from it.

Can you explain the difference or the intent - or what I'm missing here from what has been posted?

[AtlantaTaxExpert]

JudyKayTree:

I KNOW you are more sophisticated than that. If you simply think about it, you will realize that merely opening a joint account, by itself, cannot be a means to avoid either gift or estate taxes.

If gift and/or estate taxes could be avoided with that level of simplicity, NO ONE would EVER pay gift or estate taxes, because the rich would simply open joint bank accounts with their children or other relatives or heirs and simply transfer their liquid assets when their demise is imminent.

[JudyKayTee]

JudyKayTree:

I KNOW you are more sophisticated than that. If you simply think about it, you will realize that merely opening a joint account, by itself, cannot be a means to avoid either gift or estate taxes.

If gift and/or estate taxes could be avoided with that level of simplicity, NO ONE would EVER pay gift or estate taxes, because the rich would simply open joint bank accounts with their children or other relatives or heirs and simply transfer their liquid assets when their demise is imminent.

You're giving me more credit than I deserve - this is what "we" did and now I'll check with the accountant.

My mother and I opened a joint account. I put in some money. She put the bulk of the money into the account. We were told - by the accountant who, for reasons you have explained, may have given us very bad advice - that as long as the deposits were made by both of us (the amount, the percentage would not matter) it is a joint account, no taxes should either one of us die.

If my mother withdraws money and hands it to one of my sisters, then it's taxable.

She also opened joint accounts with my sisters for that very purpose.

If you are right, there's a problem. Now I don't know why trusts weren't set up.

(In case you haven't figured it out, this is why I don't keep my own books, don't do my own taxes. I'm tax and math impaired!)

[ScottGem]

This is turning out to be a very interesting issue. I'm waiting with bated breath ;) for our great tax experts to make this clear to us poor peons ;). I am serious though as this seems to open a can of worms.

Some examples. All my accounts are joint with my wife. We both have our paychecks deposited into our checking and bills and petty cash are withdrawn as needed. Are there any gift tax implications here?

My daughter has her accounts joint with my wife. However, all the deposits are from my daughter. My wife is on theaccount only in the case that something should happen to my daughter. What would be the tax implications there?

I understand IntlTax's point that, as long as the father maintains full control that gift tax is not applicable. But what if both the father and son contributed funds, but in unequal amounts. Since both had full control, how does one figure out tax liability? What about declaring any interest income.

This seems to be a much more complex issue then most people think.

[AtlantaTaxExpert]

Scott:

That USED to be a problem, until Congress woke up and realized that transfers between husband and wife should be exempt from gift tax laws, and amended the laws accordingly.

What your wife and your daughter are doing is what I do with several of my children. I am on their account so I can access the money when they are away to pay their bills and so forth.

What your daughter and wife have set up have NO tax implications to date, as long your daughter does not authorize your wife to withdraw MORE than $13,000 for all of 2009.

The interest income goes on the tax return of the primary account holder (presumably your daughter).

It is normally NOT a real complex issue as long the amounts withdrawn for the entire year by the secondary account holder does not exceed the gift tax minimum, which, for 2009, will be $13,000. For any amount under that $13,000, no reporting is done and no gift tax returns are required.

[ScottGem]

Ok, so the only time this becomes a problem is when a withdrawal exceeds the gift tax limit.

But what happens when it does and the funds are commingled. Lets say both dad and son, made annual deposits to the account. Lets say that dad put in $10K and son put in $5K for each year for 6 years. With interest the account has now grown to $100K. Would both dad and son have to account for what they deposited? Would the son be able to withdraw up to $43K (adding in the $13K threshold, without tax liability?

[AtlantaTaxExpert]

Both the value of the account, and the interest, would have to be pro-rated to determine proper ownership.

Under the scenario noted, Dad consistently deposited two-thirds of the account value each year, and the son one-third. Hence, when they made withdrawals, no gift is made as long as Dad does not withdrawmore than to-thirds of the value of the account, while the son is restricted to one-third.

Hence, the son could withdraw up to $43K with NO gift tax implications.

[JudyKayTee]

Both the value of the account, and the interest, would have to be pro-rated to determine proper ownership.

Under the scenario noted, Dad consistently deposited two-thirds of the account value each year, and the son one-third. Hence, when they made withdrawals, no gift is made as long as Dad does not withdrawmore than to-thirds of the value of the account, while the son is restricted to one-third.

Hence, the son could withdraw up to $43K with NO gift tax implications.

And this is what my accountant just told me - it's not a straight gift tax, it's pro rated so I'm okay, as are my sisters and mother.

[ScottGem]

Ok, that's what I figured, but it means that in such a case, the depositors need to keep good records of what they deposit.

[IntlTax]

Transfers between spouses are not a problem as long as both are U.S. citizens. Transfers from a U.S. citizen spouse to a non-U.S. citizen spouse (even to resident alien spouses) are generally "taxable gifts" if they exceed $133,000 (for 2009 -- the amount is indexed for inflation). Any amount in excess of $133,000 may be sheltered by the unified gift tax credit of $1,000,000.

[AtlantaTaxExpert]

Great point, IntlTax.

I keep forgetting that a fair number of our forum readers are NOT U.S. citizens.

[IntlTax]

The record-keeping to keep track of gifts can get difficult for non-spousal joint accounts where both parties are contributing into the account.