Gift or Not??

[Terry D EA]

A long time client is being made joint owner of another individuals savings account, 40K, and given exclusive right to use the money as necessary. Thinking joint tenancy, I see this transaction as a gift and if the total is given in one year, then a gift tax return must be done. Only way to avoid the gift tax return if for the donor to give 14K each year. Other opinions please.

[FDNY]

I run into this often with parents and kids.  I always recommend a gift tax return.  But in your case with only 40K and if account change is not made yet why not have original owner withdraw 12K now, then put it back after new year. No need for gift tax return.  Usually I find out about clients making this change years after the occurrence.  Happens a lot where they just put a kid's name on the personal residence instead of contacting an attorney (or me) for a reco on how to do this properly.

[DANRVAN]

There is no gift until money is drawn out by the individual whose is name is placed on the account for his / her own personal use.  So you can put kid's name on a million dollar account, but there is no reportable gift unless the kid draws out over $14,000 for his own use.  See Reg. § 25.2511-1(h)(4).

[DANRVAN]

2 hours ago, Terry D said:

given exclusive right to use the money as necessary

You mean only the client has access to the money and not the original account holder?

[FDNY]

33 minutes ago, DANRVAN said:

There is no gift until money is drawn out by the individual whose is name is placed on the account for his / her own personal use.  So you can put kid's name on a million dollar account, but there is no reportable gift unless the kid draws out over $14,000 for his own use.  See Reg. § 25.2511-1(h)(4).

I believe this is for a new account where subsequently a large sum is deposited by one owner and the other takes it out for his personal use.  If the account is existing, as with property, adding someone else could trigger gift tax rules. 

[FDNY]

I stand corrected, simply putting someone else's name on an account does not constitute a completed gift, only when it is withdrawn as Dan states.  I learn something new everyday around here.

[FDNY]

On ‎12‎/‎26‎/‎2016 at 11:53 AM, Terry D said:

A long time client is being made joint owner of another individuals savings account, 40K, and given exclusive right to use the money as necessary. Thinking joint tenancy, I see this transaction as a gift and if the total is given in one year, then a gift tax return must be done. Only way to avoid the gift tax return if for the donor to give 14K each year. Other opinions please.

Sorry, but I needed to re check this as I was troubled that I may have had this wrong, now I think I was correct.  This always comes up in my practice so here goes.  Reg. 25.2511-1 (c)(1) states:  The gift tax also applies to gifts indirectly made.   Thus, any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax.  

Dan is correct that in 25.2511-1 (h)(4) gift tax is owed only if money is taken out, but in the example, it shows that A and B opened a new joint account with A's money.  A would only be responsible for gift tax if money was withdrawn by B.

What I usually tell clients is talk to an attorney or consider just giving the child or other person just a signatory right on the account as usually it's an older person wanting someone to pay bills. 

 

[DANRVAN]

3 hours ago, FDNY said:

Sorry, but I needed to re check this as I was troubled that I may have had this wrong, now I think I was correct.  This always comes up in my practice so here goes.  Reg. 25.2511-1 (c)(1) states:  The gift tax also applies to gifts indirectly made.   Thus, any transaction in which an interest in property is gratuitously passed or conferred upon another, regardless of the means or device employed, constitutes a gift subject to tax.  

Dan is correct that in 25.2511-1 (h)(4) gift tax is owed only if money is taken out, but in the example, it shows that A and B opened a new joint account with A's money.  A would only be responsible for gift tax if money was withdrawn by B.

What I usually tell clients is talk to an attorney or consider just giving the child or other person just a signatory right on the account as usually it's an older person wanting someone to pay bills. 

 

I am not sure what you are saying here FDNY. But if you are saying the example in 25.2511-1 (h)(4) does not apply because an existing account was involved instead of a new account, then I disagree.  The example given is just that; an example.

Regardless of whether it was an existing account or a new account a completed gift has not occurred because donor has not relinquished control and no actual transfer has taken place between A and B. Since it is a joint account, "A" could draw out the entire amount, so then what happens to the 'gift" to B?

It would be different if there was a transfer of an interest of real estate. In that case "B" would have title and right of ownership in his name. In the case of the joint bank account he has the ability to draw out the funds, but until that point, he does not have control over any given portion of the funds.  On the other hand, "A" has does not give up anything until "B" draws the money out.

Reg § 25.2511-2(b) discusses how control or reserve of control relates to gifting.

 

 

[Terry D EA]

>>>>>>exclusive right to use the money as necessary<<<<<<<< I should not have said exclusive right. My client can use the money and so can the original owner. My client wants to purchase land with a portion of this money. So, to avoid a gift tax return, he could withdraw 14K this year and put it wherever and do the same next year and then purchase the property.  I can see a couple of different ways he can do this as the original owner of the property he wants to purchase has defaulted on the taxes. He is waiting for it to go into foreclosure and then attempt to make the purchase.

[SaraEA]

Why are people so afraid of the gift tax?  I've had many clients believe they can't give away more than $14k a year (or $12k if they're stuck with what they heard in the past).  You can give as much as you want away, but if it's over $14k you must file a gift tax return.  Unless you've given away $5.45m ($10.9m MFJ), you will pay no gift taxes.  You file the return only because that's how the gov't keeps track of your lifetime gifts.  If what you've gifted plus what's left over when you die is more than the above threshholds, you will pay some estate tax.  This affects very few people.  Those with that kind of wealth usually set up trusts, whatever to avoid it.  Note, though, that some states have lower threshholds.

Instead of dancing around with joint accounts and such, tell your client just to give the person the money and file the 709.  All they'll loose is your fee.  I charge $350 for federal and state.

[DANRVAN]

I agree with Sara, and in some states it makes sense to gift.  In Oregon the inheritance exemption is only one million and  there is no gift tax.

[Terry D EA]

Sara I agree totally. But, some folks don't want to have to pay to have the gift return prepared and filed. I have suggest different scenarios to this client and have reinforced the fact that we are talking about 40K and no tax paid by anyone. But did warn if he takes it all in one year, then a gift tax return is required.

[Abby Normal]

Since gift tax returns can be filed at time of death, I advise people with estates not even close to 5 million to just keep track of their gifts in case they ever need to be filed. There's no penalty for filing them late.

[SaraEA]

If you gift real estate, some states do follow the public property transfers and demand 709s (including late filing penalties).  Problem with your approach is that if someone goes into a nursing home prior gifts are part of the Title 19 application.  You can't just wait until someone dies to reveal them.