# Tax and Inheritance Question **URL:** \ **Category:** Factual Questions\ **Created:** [March 16, 2015, 7:13pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137 "2015-03-16T19:13:14Z")\ **Posts on this page:** 10\ **Page:** 1
**Author:** ![tim-n-va](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tim-n-va/32/3001_2.png) [@tim-n-va](https://boards.straightdope.com/u/tim-n-va)\ **Post date:** [March 16, 2015, 7:13pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/1 "2015-03-16T19:13:14Z")
Rough sequence: 1. Mother-in-law makes my wife a joint account holder on her savings account (with rights of survivorship) 2. Significant cash from a reverse mortgage on mother-in-law’s home is deposited in the savings account 3. Mother-in-law dies The entire savings account balance now legally is my wife’s. She wants to split it with her siblings but it exceeds the IRS gift tax limit. The gift tax is generally paid by the person giving the gift and I don’t want that coming out of our joint funds. Any options we should consider other than incremental gifts in different tax years. How does the IRS know that a gift has been made? ---
**Author:** ![jebert](https://avatars.discourse-cdn.com/v4/letter/j/ec9cab/32.png) [@jebert](https://boards.straightdope.com/u/jebert)\ **Post date:** [March 16, 2015, 7:25pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/2 "2015-03-16T19:25:29Z")
I’d say parcel it out to the siblings $12K (or the current limit) per person per year. Keep it in the separate account and don’t commingle with any of your other funds. If someone wants their full share now, tell them they’ll have to pay any gift taxes themselves. ---
**Author:** ![RTFirefly](https://avatars.discourse-cdn.com/v4/letter/r/c77e96/32.png) [@RTFirefly](https://boards.straightdope.com/u/RTFirefly)\ **Post date:** [March 16, 2015, 7:40pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/3 "2015-03-16T19:40:59Z")
You’re conflating how probate treats assets, and how the IRS treats them. It’s kinda silly, how different they can be, but different they are. If you die and leave me $10 million by means of a joint bank account (feel free, I’m not proud), it passes to me outside of probate, which means no court administers the transfer. But the IRS would expect your estate to pay Federal estate tax (FET) on the portion of your estate above whatever the exemption amount is these days ($3M? $5M? I can’t keep track anymore), and would include the $10M in the joint account as part of your estate for tax purposes. How long has it been since MIL died? Did she leave a will, or give any other instructions about how this money was to be distributed? Who is the executor? Has s/he filed a Federal estate tax return yet? ISTM that if MIL left guidance that this money was to be distributed equally among her children (or if everyone involved agreed to pretend that that was the case), it would be treated as one transfer (from MIL’s estate to each of the siblings) rather than two (one from MIL to your wife, and a second from your wife to each of her sibs) for tax purposes.\* And you’d want to make sure the FET return was consistent with this. _But my days as an estate tax paralegal are a few decades in the rearview mirror, and you should get an opinion from a lawyer who practices in this field._ ETA: And if it’s a single transfer from MIL to each of the kids, there’s no Federal estate tax unless the estate is in the multimillions, and gift tax wouldn’t apply. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [March 16, 2015, 8:10pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/4 "2015-03-16T20:10:11Z")
This is the kind of thing where the attorney and the accountant need to get together to discuss the laws on both sides of the issue, making sure that state and federal rules about both taken into consideration. One point, though: I think you’re misunderstanding how gift taxes work. There is an annual exclusion of $15,000 per person per spouse. (You’re married, so that means you and wife combined can give $30,000 to each recipient. A married recipient doubles that again.) I think when you’re worried about gift tax that this is the number you’re referring to, but this number only affects when a gift tax return has to be filed. For the gift tax itself, there is a lifetime exclusion limit of $1 million in gifts. Rephrased: your first $1 million to exceed the annual limit will be reported, but will still be tax-free. There will only be gift tax due after you exceed $1 million in lifetime gifts. The gift tax return is not particularly difficult and most people never use more than a fraction of their lifetime limit, so there’s not much downside if your wife does have to file it. ---
**Author:** ![tim-n-va](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tim-n-va/32/3001_2.png) [@tim-n-va](https://boards.straightdope.com/u/tim-n-va)\ **Post date:** [March 16, 2015, 9:58pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/5 "2015-03-16T21:58:47Z")
Everything I’ve read online about joint accounts with rights of survivorship (JTWROS) says the assets are not part of an estate and therefore bypass probate. The distinction between reporting excess gifts and paying taxes on them is interesting. ---
**Author:** ![doreen](https://avatars.discourse-cdn.com/v4/letter/d/858c86/32.png) [@doreen](https://boards.straightdope.com/u/doreen)\ **Post date:** [March 16, 2015, 10:44pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/6 "2015-03-16T22:44:39Z")
> [@tim-n-va](#): > > Everything I’ve read online about joint accounts with rights of survivorship (JTWROS) says the assets are not part of an estate and therefore bypass probate. It does bypass probate but taxes are a different issue I thought that the gift tax return would be needed as soon as the name was added to the account ( as that would be when the gift was made) but it that it’s more complicated than that. Googling "gift tax joint bank account " brings up a lot of articles- and what I’ve gotten from them is that if the balance is under the gift tax exclusion amount, no problem. Anything over that amount requires additional factors to be taken into account- who deposited how much of the money? who withdrew how much ? are the owners spouses,?is the account set up in such a way that each owners interest can be separated? etc ---
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [March 16, 2015, 10:53pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/7 "2015-03-16T22:53:28Z")
> [@dracoi](#): > > There is an annual exclusion of $15,000 per person per spouse. (You’re married, so that means you and wife combined can give $30,000 to each recipient. A married recipient doubles that again.) I think when you’re worried about gift tax that this is the number you’re referring to, but this number only affects when a gift tax return has to be filed. > > For the gift tax itself, there is a lifetime exclusion limit of $1 million in gifts. Rephrased: your first $1 million to exceed the annual limit will be reported, but will still be tax-free. There will only be gift tax due after you exceed $1 million in lifetime gifts. The gift tax return is not particularly difficult and most people never use more than a fraction of their lifetime limit, so there’s not much downside if your wife does have to file it. [The 2015 annual exclusion is $14,000](http://www.irs.gov/pub/irs-drop/rp-14-61.pdf), not $15,000. It should be noted that by electing gift-splitting (and getting your spouse’s consent) a married couple can give $28,000 in one one year to a single person without filing a gift tax return, but you would have to give each member of a married couple a separate gift in order to double the exclusion in that way. The $1 million lifetime exclusion limit went away in one of the myriad rewrites of the estate tax law. Currently, you have a combined gift and estate tax exclusion of $5.43 million per person in 2015 (plus a carryover of unused spousal exemptions). That means that if you use up $2 million of your combined lifetime exclusion by making gifts, your estate will only have $3.43 in estate tax exclusions left. By the way, another trick to increase your annual limit is to pay off the recipient’s medical or tuition bills. The payments must be made directly to the educational or medical service provider. Books and room and board are not included. So pay off the recipient’s or the recipient’s kids’ tuition bills of medical bills instead of cutting them a check directly. ---
**Author:** ![Alley\_Dweller](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/alley_dweller/32/430_2.png) [@Alley\_Dweller](https://boards.straightdope.com/u/Alley_Dweller)\ **Post date:** [March 16, 2015, 11:28pm UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/8 "2015-03-16T23:28:49Z")
> [@doreen](#): > > It does bypass probate but taxes are a different issue I thought that the gift tax return would be needed as soon as the name was added to the account ( as that would be when the gift was made) but it that it’s more complicated than that. > > Googling "gift tax joint bank account " brings up a lot of articles- and what I’ve gotten from them is that if the balance is under the gift tax exclusion amount, no problem. Anything over that amount requires additional factors to be taken into account- who deposited how much of the money? who withdrew how much ? are the owners spouses,?is the account set up in such a way that each owners interest can be separated? etc [Treas Reg §25.2511-1(h)(4)](http://www.ecfr.gov/cgi-bin/text-idx?SID=178297d8a34918b4661d1df9082099b3&node=se26.14.25_12511_61&rgn=div8): > [@](#): > > (4) If A creates a joint bank account for himself and B (or a similar type of ownership by which A can regain the entire fund without B’s consent), there is a gift to B when B draws upon the account for his own benefit, to the extent of the amount drawn without any obligation to account for a part of the proceeds to A. Similarly, if A purchases a United States savings bond registered as payable to “A or B,” there is a gift to B when B surrenders the bond for cash without any obligation to account for a part of the proceeds to A. In other words, the gift does not occur until the person whose name was added to the account tries to withdraw money for their own use. And, yes, it the second person also made some deposits of their own money to the account, then you have to start calculating how much of that withdrawal was just a return of their own money and how much was a gift from the other person. However, this is quite different from, for example, putting your kid on the title to your house as a joint owner: [Treas Reg §25.2511-1(h)(5)](http://www.ecfr.gov/cgi-bin/text-idx?SID=178297d8a34918b4661d1df9082099b3&node=se26.14.25_12511_61&rgn=div8): > [@](#): > > (5) If A with his own funds purchases property and has the title conveyed to himself and B as joint owners, with rights of survivorship (other than a joint ownership described in example (4) but which rights may be defeated by either party severing his interest, there is a gift to B in the amount of half the value of the property. However, see §25.2515-1 relative to the creation of a joint tenancy (or tenancy by the entirety) between husband and wife in real property with rights of survivorship which, unless the donor elects otherwise is not considered as a transfer includible for Federal gift tax purposes at the time of the creation of the joint tenancy. See §25.2515-2 with respect to determining the extent to which the creation of a tenancy by the entirety constitutes a taxable gift if the donor elects to have the creation of the tenancy so treated. See also §25.2523(d)-1 with respect to the marital deduction allowed in the case of the creation of a joint tenancy or a tenancy by the entirety. In that case, the gift occurs as soon as the second person’s name is added to the title. What happens if the money is still in the joint account at the time the donor dies? The money passes immediately to the survivor without going through the probate estate. BUT it does become part of the gross estate for federal estate tax purposes. The amount can and will be used in determining how much estate tax the estate is liable for. If the survivor can prove that they contributed part of the amount in the joint account, that part can be excluded from the gross estate. > [@](#): > > [Treas Reg §20.2040-1](http://www.ecfr.gov/cgi-bin/text-idx?SID=178297d8a34918b4661d1df9082099b3&node=se26.14.20_12040_61&rgn=div8) Joint interests. > > (a) In general. A decedent’s gross estate includes under section 2040 the value of property held jointly at the time of the decedent’s death by the decedent and another person or persons with right of survivorship, as follows: > > (1) To the extent that the property was acquired by the decedent and the other joint owner or owners by gift, devise, bequest, or inheritance, the decedent’s fractional share of the property is included. > > (2) In all other cases, the entire value of the property is included except such part of the entire value as is attributable to the amount of the consideration in money or money’s worth furnished by the other joint owner or owners. See §20.2043-1 with respect to adequacy of consideration. Such part of the entire value is that portion of the entire value of the property at the decedent’s death (or at the alternate valuation date described in section 2032 which the consideration in money or money’s worth furnished by the other joint owner or owners bears to the total cost of acquisition and capital additions. In determining the consideration furnished by the other joint owner or owners, there is taken into account only that portion of such consideration which is shown not to be attributable to money or other property acquired by the other joint owner or owners from the decedent for less than a full and adequate consideration in money or money’s worth. > > The entire value of jointly held property is included in a decedent’s gross estate unless the executor submits facts sufficient to show that property was not acquired entirely with consideration furnished by the decedent, or was acquired by the decedent and the other joint owner or owners by gift, bequest, devise, or inheritance. ---
**Author:** ![dracoi](https://avatars.discourse-cdn.com/v4/letter/d/90db22/32.png) [@dracoi](https://boards.straightdope.com/u/dracoi)\ **Post date:** [March 17, 2015, 12:16am UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/9 "2015-03-17T00:16:46Z")
> [@Alley\_Dweller](#): > > [The 2015 annual exclusion is $14,000](http://www.irs.gov/pub/irs-drop/rp-14-61.pdf), not $15,000. Oops, getting ahead of myself there. :smack: And behind, apparently, on the $1 million issue. Teach me to not double-check these things first. ---
**Author:** ![tim-n-va](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/tim-n-va/32/3001_2.png) [@tim-n-va](https://boards.straightdope.com/u/tim-n-va)\ **Post date:** [March 17, 2015, 1:37am UTC](https://boards.straightdope.com/t/tax-and-inheritance-question/715137/10 "2015-03-17T01:37:32Z")
Thanks for the input. Looks like I don’t have to worry about actually paying a tax but this could affect our lifetime estate exclusion. No probate implications but this amount would be counted in Federal estate taxes. If my wife had withdrawn funds from the account prior to the death of her mom, that amount would have been a gift because she contributed nothing to the account. There is a will but it just specifies an equal split among the children.