Gift tax

Question:

For many years, I have been contributing annual gifts (less than the exclusion amount) to a joint account I set up for my son. I’m a joint owner but the account is in his Social Security number. It has built up a large balance over $400,000, and neither I nor my son have taken any money out. I have heard that this may be a problem and that, if he takes a large sum out, it will be considered a gift by me at that time, and for that amount, and not when I contributed to the account. If this is true, what can I do to fix it?

Response:

I don’t think that’s likely since the account is in your son’s Social Security number and your intent was always to make a gift to him.

Further, for almost everyone gift taxes are now an “academic” issue, not a real one. We are supposed to report gifts made to others that exceed $19,000 (in 2025) in a calendar year. But there’s no actual gift tax until the cumulative value of these taxable gifts exceeds $14 million. In addition, the penalty for failing to file a gift tax return is a percentage of the gift tax owed. No tax owed, no penalty for failing to file.

Even wealthy people with taxable estates rarely pay gift taxes. We have a unified gift and estate tax system under which taxable gifts made during life use up some of the estate tax exemption. Let’s assume by way of example that you gave your son $4 million in a single gift rather than $400,000. You would not pay a tax on this. Instead, this would use up $4 million of your $14 million estate tax exemption, meaning that at death you could give him only $10 million tax free. Not a problem for too many people.

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