Gift tax question

My father added my name to his bank account in which he has $1,500,000, so that we now hold the account jointly. I then transferred $600,000 into a different account that I have in my name alone. Would this create a situation where my father would have to pay gift tax? Is there a way I could prevent that by transferring some amount back into the joint account? Thanks.

Good question, I would also like to ask what if it is a joint account of a couple.

The gift was complete when you were given joint access to the account. In this case, gift tax is not likely due, as your father has a lifetime exemption of $1,000,000 to utilize. Unfortunately, this means that he will have used $738,000 of his lifetime exemption with this setup, since every individual can gift up to $12,000 per year to any number of individuals, without tax consequences.

Transferring the money back won't make a difference, as you are a 1/2 owner of the account. Your father will need to file a form 709 with the IRS to utilize the exemption for this transaction.

Regarding newandrew's question, the annual exemption for a joint account is $12,000 per person, making the total $24,000 in annual exemption.

Hope this helps -

No gift was completed when you first were named jointly on the account.

The actual gift for tax purposes is only "completed" after the joint (donee) withdraws more than they have deposited in the account.

You have withdrawn $600,000 and this constitutes a completed gift and it is irreversible. If you had refused the gift with a disclaimer, the gift would have to be passed onto someone else anyway, thus keeping the situation the same for your father.

Blankenship is on the money for the exclusion, thus no taxes will come due. However, it will count against the lifetime exclusion of your father.

If he passes away while you are listed as a joint holder on the remaining balance, the entire amount will be considered an additonal gift completed to you on the date of his passing, making $500,000 of the remaining balance taxable as a gift AND it will revert back to the estate (because it was completed less than 3 years prior to death), creating a "double-whammy" effect.

He may want to rethink his gifting strategy and/or the consequences of keeping his current situation. Has he thought about setting up an irrevocable life insurance trust (ILIT) and using his annual gifting exclusions to fund the insurance premiums for the beneficiaries?

Pricespector is absolutely correct - the gift was completed when you withdrew the funds, and the amount of the gift is the amount that you withdrew. This is different with joint bank accounts than with other kinds of property. My mistake!