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Unfortunately, this scenario may not play out as intended, but it does have some potential benefits.
Taxes on gifts and estates are governed by the same section of the tax code, a joint tax known as the gifts and estate tax. This tax applies to any unilateral transfer, which is defined as giving someone assets without receiving equivalent value in return. Any time you let someone take or use your assets for themselves, without paying you the fair market value for that asset, it is either a gift (if you are alive) or an estate (if you have passed).
For example, say that your mother has a savings account with $40,000 in it. She wants to add you as a joint owner of the account, so that you can take control of the account after her death without owing taxes.
This plan will help you save time and money on the probate process. However, you will still owe any applicable gift taxes if you access the money during her life, or estate taxes once she is dead. Then it becomes a question of whether those taxes apply depending on several other circumstances.
You should consider speaking with a financial advisor if you want professional guidance asset transfers and taxes among your family members, as the rules can get complicated. Below are some basic things to be aware of.
The gift and estate tax is a tax that applies to all unilateral transfers. If you give someone assets of value during your lifetime, the transfer is considered a gift. If you give someone assets after your death, the transfer passes through your estate.
When the gifts and estate tax applies, it is paid by the donor. (That is, the tax is paid by the person giving the gift or the tax is paid by the estate, not the recipient.) This is a progressive tax, so the exact amount of the tax varies based on the size of the transfer.
Very few people owe either gift or estate taxes. This is because they have very high exemption thresholds. An exemption is the amount that you can transfer, either as a gift or a bequest, before any taxes apply to the transaction.
First, each year the gift tax allows an annual exemption. This is an amount of money or value that you can give away without needing to report the gift to the IRS at all. This exemption applies per-donor, per-recipient. In 2025, the annual exemption is $19,000. This means that you can give away up to $19,000 each to as many people as you would like without owing taxes or reporting the gifts to the IRS. These are also referred to as unreported gifts.
The annual exemption does not apply to estates, meaning that your estate does not account for the annual exemption in the year that it passes to your heirs.
Second, the gift and estate tax have a joint lifetime exemption. This is the amount of money or value above the annual exemption that you can give away without paying any taxes. In 2025, the lifetime exemption is $13.99 million. The lifetime exemption applies per-donor, meaning that it is one exemption you receive for all your giving combined and your estate.
So, for example, say that in 2025 you give $100,000 each to three different people. First, you would apply the annual exemption to each gift, leaving you with three gifts of $81,000 over the annual exemptions, or $243,000 in total. ($100,000 – $19,000) You would then reduce your lifetime exemption by this overage, bringing your lifetime exemption down to $13.747 million.
After this giving, you would have another $13.747 million that you could transfer over your lifetime through reported gifts and your estate before owing any taxes.
The annual exemption applies separately each year. For example, say that you give someone $19,000 in 2025 and then again in 2026. Each gift would fall under that year’s annual exemption, so you would not have to report any giving.
You will owe gift or estate taxes if you make a gift or bequest that exceeds your remaining lifetime exemption and any applicable annual exemption. For example, say that you have given away $13 million in reportable gifts over your lifetime. You die and leave an estate worth $5 million. Your estate will pay estate taxes on $4.01 million. (The $5 million estate – your remaining $990,000 lifetime exemption.)
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As explained by Arron Bennett, CFO or Bennett Financials, adding someone as a joint owner to an asset does not eliminate potential taxes.
“When it comes to adding someone as a joint owner on a depository account, it’s important to understand the potential implications for both estate taxes and probate,” he said. “In the hypothetical situation where your mother adds you to her savings account, it may seem like a straightforward way to avoid probate, but it doesn’t necessarily help you sidestep estate taxes entirely.”
Here’s why.
Adding someone as a joint owner to an asset means that you’ve given them a portion of ownership. Exactly how and when that triggers will depend significantly on the nature of the asset. However, in all cases, you’ve made a unilateral transfer so the gift and estate tax applies.
Now, joint ownership does have some significant benefits in that it allows you to avoid probate. When your mother dies, your ownership of the savings account will continue on uninterrupted, avoiding a lengthy legal process.
Moreover, given the amounts in question it’s extremely unlikely that the gift and estate tax would apply at all here. A $40,000 account is well below the lifetime exemption, and is even just twice as much as the annual exemption. Unless your mother has given away millions of dollars throughout her lifetime, it’s unlikely that this account would ever trigger estate taxes in the first place.
However, aside from the exemption limits, this transfer would still likely be taxable.
First, Bennett said, there’s “the possibility of gift tax implications if your mother adds you as a joint owner and you start using the account. The IRS may see this as a gift if you’re withdrawing or benefiting from the account, which could trigger the gift tax.” This would not apply if you withdraw this money for your mother’s use and benefit. If you withdraw the money for yourself, however, it will constitute a gift.
If you do not use or benefit from this account during your mother’s lifetime, it could still trigger estate taxes at her death. “The value of the account your mother owns, or her portion of it, could still be considered part of her estate for tax purposes,” Bennett said. At your mother’s death, this account will pass from her estate into your full ownership, which would trigger any applicable estate taxes.
Adding you as a joint owner on her account is a good idea by your mother. It will save on probate, and will let you help with any financial management needs she has in her old age. However, it will not work as a tax shelter. Consider speaking with a financial advisor for help building a plan to reach your family’s financial goals.
The gifts and estate tax is a tax on any unilateral transfer from one person to another. It applies any time you give someone ownership or control over an asset, so you cannot avoid it by simply making them a joint owner on accounts or title papers.
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