Tax Implications for Adding a Child as a Joint Account Owner to a Savings Account

by Jack Ori

It may be tempting to add your adult children to your savings account so that they can inherit the account funds after your death without going through probate. However, adding your children to your bank account may trigger gift-tax requirements. Consult a tax professional before taking this step to ensure your children's withdrawals from the account won't result in a big tax bill.

Tax Responsibility

In general, the primary owner of an account is responsible for any taxes due on the account. For example, if your savings account earns interest, you are responsible for paying taxes on the interest. When you open the account, you fill out a W9 for tax purposes, which makes you the responsible party. Your child isn't responsible for taxes on the account, although the Internal Revenue Service can come after him as a joint owner if you fail to pay the taxes you owe.

Gift Tax

As of 2011, you can make a gift of up to $13,000 per year to your child without incurring gift taxes. As this applies to joint bank accounts. If you add an adult child's name to your bank account, the child's withdrawals from the account may be considered gifts. Thus if the child withdraws more than $13,000 from the bank account, you may be liable for gift taxes on the excess amount.

Lifetime Gift Tax

In addition to the $13,000 per year figure, current tax law caps your lifetime gift tax exemption at $1 million. Technically, you don't have to pay gift taxes until you exceed this amount. However, you must file a gift tax return each year that you exceed the $13,000 total. So if you add your adult children to your bank account, you might face penalties, fines or even jail time if you don't file a gift tax return.

Inheritances

If you have a joint bank account with a child, the account doesn't go through probate after your death; it transfers automatically to your child's name. Since your joint bank account doesn't go through probate, your estate may not have to pay taxes on it before your child receives it.