Not inheritance tax, but possibly estate tax. There is a 3.5 million dollar federal estate tax exemption for 2009. the Maryland exemption is 1 million.
When you make someone a joint owner of proeprty, you give them a part of the property and also give them control. If someone were to sue your son and get a judgment, his part of the account would be exposed to the judgment. As a result joint ownership may very well be a bad way to go.
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Joint ownership of assets with family members other than a spouse can create tax liabilities and other problems that should be understood before entering into such arrangements.
The rules governing joint ownership of bank accounts with family members other than a spouse are complicated and somewhat dependent on individual state laws (which should be examined closely by you or your attorney), but potential Federal tax liabilities generally fall into three categories: gift, income, and estate taxes. Note that joint ownership of bank accounts is often treated differently than joint ownership of other types of assets.
IRS regulations provide that if the contributor to the joint account can gain access to the entire balance without the consent of the other joint tenant to whom an interest is transferred, the account is revocable. In this instance, a gift would occur only when the noncontributing joint tenant withdraws funds. However, in some states, the law provides the noncontributing joint tenant with an inalienable, or vested one-half interest in the bank account. In these states, a gift can occur immediately upon transferring a joint interest to another person.
In the even that the transfer of the joint interest results in a gift, the IRS allows an exclusion that currently permits an individual to give, tax free, up to $13,000 each year to any number of individuals. The exclusion is $26,000 when giving jointly with a spouse. Gifts in excess of the annual exclusion use up part of a $1 million lifetime gift tax exemption ($2 million for married couples giving jointly). If an individual's remaining gift tax exemption covers the gift, no gift tax is due.
Generally, if the transfer of the joint interest in the bank account is treated as a gift, the recipient of the gift, for income tax purposes, is considered the owner of the portion donated. Therefore, any income or capital gain from the jointly held asset must be divided among the owners in proportion to the interest they are considered to own under state law.
As with any gift of property, the shifting of post-gift income and appreciation to the recipient can have advantages or disadvantages, depending on the tax bracket involved. If, for example, a recipient child is in a lower tax bracket than the parent, less income tax would be due on the child's portion of the income.
When one of the joint tenants dies in a non-spousal joint tenancy, the decedent's estate would include the proportionate share of the value of the property (in this case, the value of the bank account) that is based on the portion of the original purchase price furnished by that joint tenant. This will occur regardless of whether placing a child's name a joint tenancy account resulted in a taxable gift. Although appropriate credit will be given for any gift tax paid or gift tax exemptions that were utilized when the joint tenancy was created, all the appreciation in the account will still be included in decedent's estate. Thus, if a parent owns an account outright and adds a child as a joint tenant later, 100 percent of the property's value will be included in the parent's taxable estate if the parent dies first. As a result, the basis of the entire property would be increased to fair market value at the date of death.
Finally, note that adding a family member as a joint tenant to an asset can also nullify a will or revocable trust by altering the distribution pattern specified by the instrument. The will or revocable trust would be nullify a will or revocable trust because, under the joint tenancy form of ownership, the asset is no longer controlled by the will or trust.
Therefore, before putting an asset in a joint tenancy with a child, you should carefully consider the potential Federal tax and estate distribution consequences and discuss them with a legal or tax adviser.
I think what you are asking is "will there be an estate tax" when you die. Simply stated, a joint asset is 100% includible in your taxable estate at your death. Since you said it was your bank account, then I assume you contributed 100% to the account and you son made no contribution. Correct?
In Maryland, there is state estate tax liability on estates above $1 million. The federal estate tax liability is on estate of $3.5 million and above.
The real issue, which you are not asking, is how this joint titling impacts your overall estate planning.
First, if your son has a creditor (such as a divorced spouse) your son's creditors can attach your bank account owned jointly with your son. Once you title as joint tenants, he owns the asset.
Second, if you have other children, they are not going to receive a share of the joint account. Your son has no legal responsibility to share it with the other beneficiaries.
Third, there is a gift tax liability to the extent your son removes assets from the bank account. If you made him joint tenant on a house or brokerage account, you would likely be liable for gift tax immediately (not only on withdrawal).
A better alternative to joint tenancy is a Power of Attorney. You can give authority without exposing yourself to his potential creditors and without accidentally disinheriting your other beneficiaries.
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