What are the gift tax consequences of an adult child making a withdraw from a joint account with an elderly parent?

by Elizabeth W. Kidd, CPA | May 14, 2019

askacpaicon

What are the tax consequences of adding an adult child as a joint account owner to an elderly parent’s existing savings account? Would a withdrawal from the joint account by the adult child fall under the gift tax, or would it be considered a shared asset?

From the IRS’s Instructions for Form 709 on completion of a federal gift tax return:

“If you create a joint bank account for yourself and a donee (or a similar kind of ownership by which you can get back the entire fund without the donee's consent), you have made a gift to the donee when the donee draws on the account for his or her own benefit. The amount of the gift is the amount that the donee took out without any obligation to repay you.”

If the adult child withdrew funds for the benefit of the parent, it would appear that there would be no gift.

In 2019, the amount of the annual gift tax exclusion is $15,000. Any withdrawal for the benefit of the child in excess of that amount would trigger the requirement to file a gift tax return. However, no tax would be due unless lifetime gifts exceeded the basic exclusion amount, currently in excess of $11 million.

There are other considerations with regard to adding a child to an account, including the possibility that the child may die first, the funds may become subject to the child’s creditors, and that it may impact financial aid at the child’s level. In addition, funds passing to a joint owner are not subject to the terms of a will, and if there are multiple children this can cause problems. 

An alternative to consider would be establishing a power of attorney.

For more resources, check out PICPA’s Money & Life Tips, Ask a CPA, or CPA Locator.

Answered by: Elizabeth W. Kidd, CPA, is a retired accounting instructor in Erie, Pa.

Disclaimer
The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the PICPA, its officers, directors, employees, or members.
Ask a CPA

Search the most frequently asked finance and accounting questions and read the responses from PICPA members. Always consult a CPA before taking action.

Search