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Dr. Don Taylor, CFA, Bankrate.com advice columnistDoes joint account affect gift limits?

Dear Dr. Don,
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

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Dear Dan,
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 the account.

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.

Bankrate.com's corrections policy -- Posted: Feb. 10, 2006
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