Beware of Joint Bank Accounts and the Federal Gift Tax While You are Trying to Prepare for Your Family’s Future
Because life is full of uncertainties, accidents, and surprises, it is always recommended you take the time to meet with an attorney to hash out how you want your personal property and assets to be divided up if something were to happen to you. It is also recommended you meet with a legal professional if you simply want to distribute assets to someone while you are alive, and preparing for the long term.
Most people are aware that wills and trusts and bequests of gifts can get complicated, but what they do not realize is that something simply like transferring money into a child’s bank account is a gift that has tax implications.
The Risk of Joint Bank Accounts
The IRS levies taxes on “any transfer to an individual, either directly or indirectly, where full consideration (measured in money or money’s worth) is not received in return” that is over the amount of $14,000. While a joint bank account is a convenient way to take care of any minor children, it is still taxed if that person takes money out of the account in excess of the $14,000 limit. This applies to joint accounts with parents, children, cohabiting (but unmarried) couples, business partners, and even roommates.
If you add someone to an existing bank account, that may still trigger the gift tax.
The Federal Gift Tax
In 2012, the state of Tennessee repealed its state gift tax. However, the federal gift tax still applies. This means that when you give a gift, the Internal Revenue Service (IRS) gets to tax up to 40 percent of what you give to someone (it is the same rate as the inheritance tax). The donor is responsible for paying this tax. This year’s annual exclusion rate is $14,000 a year, which can be transferred to someone, untaxed. The lifetime exclusion rate is currently $5.4 million, which can be given away to your children or other relatives, untaxed.
It is important to note that spouses are exempt from the gift tax. One may transfer as much money as they want to their (married) spouse without any tax liabilities. Additionally, paying for someone’s tuition or medical expenses are not considered gifts that have tax implications.
Let Us Help You Today
At the office of Calhoun Law, PLC in Nashville, we understand that careful planning allows you and your family to be secured and your personal wishes carried out in cases of emergencies, accidents, and wrongful death. It is never too soon to plan out with an attorney how you want to take care of your family or spouse if something were to happen to you. If you have questions about how to properly distribute your property and how to plan your estate, call now at 615-250-8000 for a free consultation or contact us by e-mail to speak directly with one of our attorneys.