Joint tenancy is a legal arrangement in which, upon one owner's death, ownership automatically survives in another owner. Although transfer of a bank account holding a certain amount of assets would normally carry gift tax consequences, joint tenancy may allow the surviving party to avoid paying gift tax. Those with specific questions about joint bank accounts should seek legal advice.
Joint tenancy is a "concurrent estate", a type of ownership in which multiple owners can simultaneously hold equal rights to property. Joint tenancy carries a right of survivorship. When one owner dies, the other owners all hold the property as though the deceased owner's interest had never existed. The deceased doesn't get to leave his interest in the property via will or other instrument; the interest simply remains in the other owners.
Joint Bank Accounts
Although any sort of property can be held in a joint tenancy, a joint tenancy bank account operates slightly differently from other jointly-held property. In other joint tenancy situations, one owner typically can't harm the other owners' interests in the property (for instance, by taking out a mortgage on a piece of real estate without the other tenants' agreement.) In a joint bank account, by contrast, one owner generally has the right to remove all assets from the account, unless the account agreement stipulates otherwise.
Under current law, when one person makes a gift to another (valued at $13,000 or less), the recipient doesn't need to pay any income tax on the gift. In determining whether something is truly a gift, the law looks at whether the impulse behind the gift was "disinterested generosity," as opposed to the hope of some sort of gain. A typical gift made upon death may subject the recipient to gift tax liability on the gift, as well as subjecting the deceased's estate to estate taxes.
Bank Account Survivorship
Whether the on-death transfer of a bank account counts as a gift for tax purposes depends on many factors. If the account contains less than $13,000, the transfer will not be a gift under the tax code. If the two joint tenants are spouses (a specialized arrangement known as "tenancy by the entirety"), current law is unlikely to impose a gift tax. However, if the account has been set up so that one joint tenant may unilaterally (on his own) sever the joint tenancy, the law is more likely to find a gift situation upon death. Also, if the remaining joint tenants transfer the assets to others upon the death of the joint tenant, the law will take this behavior into consideration and may find a gift, rather than a true survivorship situation.
- "Wills, Trusts and Estates (Seventh Edition)"; Jesse Dukeminier, Robert H. Sitkoff, James M. Lindgren and Stanley M. Johanson; 2005
- Bay Area Elder Law: The Perils of Gifting Joint Tenancy Property
- Missouri Bar: Joint Tenancy
- TurboTax: The Gift Tax
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