LISTEN TO LAWRENCE
Dear clients and friends,
Here is another one of your questions and my response:
Since we’re discussing joint accounts, a comment came up in a tax group to which I belong. It was said that if you make a joint account with say, your child, either a bank account OR a brokerage account, that it is a completed gift and needs to be reported on a gift tax return if over the annual exclusion. I always thought that a gift did not occur until the child actually withdraws money from the account or uses it for their own benefit. Brokerage accounts can get quite large so this could be a real issue. Could you confirm or deny this assertion by another attorney?
Gladly! You are right and they are wrong! It is a very common occurrence for family members, especially parent and child, to create a joint bank account or brokerage account. The reasons for this are usually to facilitate access to the account to help an aging parent or simply to avoid probate at death.
The fact that no taxable gift occurs makes sense anyway. Ask yourself, what did you give away? Yes, you put someone else on your account but you retained the unfettered right to control it and take it back at any time. The gift tax is really after transfers of wealth where you really intended to give something away.
Of course, the result would be different with different facts. Creating a joint tenancy with someone other than your spouse (there is no tax anyway for gifts between spouses) can result in a taxable gift, if you cannot remove funds from the account without the consent of the other joint tenant. Understandably, if you lose control over the account, then you really did give something away.
Congrats on getting it right.
I hope this helps! Please forward this information to your friends and relatives.
As always, please send me your questions. If you are thinking about it, others are probably too, so my answers will no doubt help you and many others.
Let’s stay connected.
LISTEN TO LAWRENCE