16 Aug What should I know about this account in my name with Mom?

Q. I have some gift tax questions. I am a primary owner of an account that was set up with my mother’s name also on there years ago. I am the one who uses the account for withdrawals and buying with debit card purchases and writing checks and I do most of the depositing, although she once in a while put some money in there well below the annual exclusion number. She did put one large gift in there in 2015 for a house payment which she did file a gift return for. Do we need to worry about this account?
— Concerned, maybe

A. It can be very confusing, partly because the banking rules and the tax rules are not entirely aligned and also because it may depend on the parties’ intent and use of the account.

Here’s what you need to know.

The banking statutes provide that with respect to multi-party accounts, any party can withdraw the entire amount in the account notwithstanding how much or little was deposited into the account by such party, said Catherine Romania, an estate planning attorney with Witman Stadtmauer in Florham Park.

In other words, the financial institution is not responsible for monitoring the account to ensure that each party deposits and withdraws his or her proportionate share of the multi-party account, she said.

For New Jersey inheritance tax purposes, unless the account is between spouses, or domestic or civil partners, the New Jersey Division of Taxation will treat the account as a transfer of the entire balance from the deceased account holder to the remaining account holders except to the extent the remaining account holders are able to prove the balance belongs to such remaining account holders and never belonged to the decedent, she said.

“If the account holders are all Class A beneficiaries — parents, grandparents, spouses, domestic and civil partners, descendants and step children — the issue may be irrelevant as there is no inheritance tax assessed with respect to Class A beneficiaries,” she said.

Finally, each person is permitted to make a present interest gift up to the “annual exclusion” amount, which this year is $17,000, to any number of beneficiaries each year free of a federal gift tax, Romania said.

“Gifts over the annual exclusion amount but less than the federal gift and estate tax exemption — presently $12.92 million — require the filing of a federal gift tax return, but no gift tax will be owed,” she said. “Instead, the excess gifts reduce the exemption available on your death.”

For federal gift tax purposes, placing funds in a joint account which funds are available to be withdrawn by another party without a requirement for repayment is a gift, she said.

At times an older parent will add a child to an account in the parent’s name for convenience only, without any intent that the child inherit the account upon death or have the ability to utilize the account for anyone other than the parent, she said. Although this is not recommended, if the intent is clear, there has been no gift, she said.

Similarly, if the multi-party account is funded and utilized almost entirely by one of the parties with the others having access only on a limited or emergency basis, the facts will likely establish that there was no gift upon funding, Romania said.

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This story was originally published on Aug. 16, 2023.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.