joint account affect gift limits?
My father-in-law recently passed away, leaving my wife and her mother
as his heirs. My wife's mother has had debilitating medical issues,
so my wife has taken over as her power of attorney, which includes
being a joint owner of numerous bank accounts. I'm wondering if
her name on an account means that the $11,000 annual limits that
her mother can pass to her do not apply to her.
-- Dan Decision
If her father's estate is settled, the fact that both mother and
daughter are beneficiaries of that estate really isn't germane to
the issue of how the mother may chose to gift her assets.
There's a difference between controlling a bank account
with a power of attorney, being a joint owner on an account and
having withdrawal privileges on the account with no joint ownership,
which is often called a convenience account. If your wife is joint
owner on the account she has full access to all of the funds. She
should contact the bank if she is uncertain about her status on
Bank accounts, generally speaking, are different from
other jointly owned assets in that no gift is considered made for
federal gift tax purposes until an owner withdraws more than he
or she has contributed to the account. The annual exclusion for
gifts increased in 2006 to $12,000 per person from $11,000. State
gift tax, however, might apply prior to the withdrawal. Only a few
states currently impose a gift tax. They are: Connecticut, Louisiana,
North Carolina and Tennessee.
With a power of attorney, the principal (the mother)
grants an agent (the daughter) the ability to act on the principal's
behalf. The document terms speak to when and how the agent may act
for the principal. There are limited powers, springing powers and
durable powers of attorney. A durable power survives the principal
being incapacitated and unable to act on her own behalf.
In an ideal world your mother-in-law's power of attorney
specifically addresses gifting. Her mom can gift assets; your wife
probably shouldn't act as agent for making gifts from her mother
unless the document specifically addresses gifting. For instance,
a power might allow gifting within the family but not outside of
the family. The power might also establish a cap on the size of
the gift. If the power of attorney doesn't address gifting, it would
be best to have her mother write a check and your wife deposit that
check in a separate account.
Note: Thanks and a tip of the hat to Connie Fontaine,
Associate Professor of Taxation and the Larry R. Pike Chair in Insurance
and Investments at The American College, for helping me understand
the issues involved in this reader's question.