A Simple Guide to Gifting Funds into JTWROS Accounts

JTWROS With a Grandchild: Tax and Estate Planning Traps and Better Options

The annual gift tax exclusion amount, currently $19,000, is a means of siphoning off assets to give tax-free money to a relative, usually a child, but sometimes a grandchild. A parent or grandparent can give up to $19,000 each year without having to file a gift tax return, as discussed below.

Adding a grandchild to a bank or brokerage account as a joint tenant with right of survivorship (JTWROS) may seem like an easy way to transfer assets. But if the grandparent funds and controls the account, that setup can create gift, income, estate, and generation-skipping transfer (GST) tax issues—and may not accomplish the intended result.

1) Is Funding the Account a Completed Gift?

What counts as a completed gift revolves around the present interest in the gift. The gift is not complete, and the grandchild has no present interest in it, until they actually take money from the account. During the calendar year, the amount withdrawn equals the gift amount for that year.

So the answer to the question is usually not. If you contribute all the funds and can still withdraw the entire balance without the grandchild’s consent, the gift is often incomplete, and no gift has been made.

Simply adding a name to the account does not automatically mean you made a present gift of half. Good records of contributions and withdrawals are essential.

2) Annual Exclusion and Form 709

Once a gift is completed, the annual exclusion may cover part or all of it. If the completed gift exceeds the annual exclusion for that year, the excess must generally be reported on IRS Form 709, which reduces the lifetime gift and estate tax exemption.

This does not mean that the donor grandparent owes any tax, only that the gift must be reported, and the annual gifting exclusion, currently at $15 Million, will be reduced by the amount of the gift over the annual exclusion amount. The annual exclusionary amount is $19,000. If the grandchild withdraws $20,000 then the grandparent would have to file a Form 709 and show that the lifetime gifting amount for the grandparent’s estate will be reduced by $1,000 (the excess of the annual gifting amount allowed).

3) Who Reports the Income from the Account?

If you fund the account and still control it, you usually report the interest, dividends, and capital gains on your return. Titling the account jointly does not automatically shift income tax liability to the grandchild.

If the grandchild owns and controls part of the account, reporting may shift accordingly. Forms 1099 do not always reflect the true tax result.

4) Estate Inclusion and Basis Step-Up

If you supplied all the funds, the entire account is often included in your estate at death under the consideration-furnished rule. The potential benefit is that included assets generally receive a basis step-up to fair market value at death, which may reduce capital gains taxes later.

So while JTWROS may avoid probate for that account, it usually does not avoid estate tax analysis if you were the source of the funds.

5) GST Tax Concerns

Because a grandchild is a skip person, completed gifts can also trigger GST tax issues. The annual GST exclusion or allocated GST exemption may help, but timing matters—especially if no completed gift occurs until the grandchild benefits.

6) Common Misconceptions

Adding a grandchild’s name does not automatically create a present gift of half the account.

Joint ownership may avoid probate on that asset, but it does not eliminate income, estate, or GST tax issues.

The name on the 1099 does not always control who owes the tax.

Co-ownership can expose the account to creditor, divorce, or benefit-planning complications.

7) Better Alternatives

If your goal is to help a grandchild and possibly reduce your taxable estate, these tools are often safer and clearer:

• Outright annual gifts for simple, trackable transfers.

• 529 plans for education-focused gifts with tax advantages and retained control by the account owner.

• Irrevocable trusts with “crummy” provisions, for control, creditor protection, and coordinated GST planning.

• Transfer-on-death designations to avoid probate without current co-ownership risks.

• UTMA accounts for smaller transfers when age-based outright ownership is acceptable.

This article is approximately 820 words long, and the subjects it discusses fill volumes of books and are reported every day in legal articles and court cases. The best choice depends on your tax situation, control preferences, and family goals.

The Bottom Line

A JTWROS account with a grandchild may look simple, but it can create more complexity than families expect. Before using one, or if you already have one, make sure you consult a competent attorney and other tax professionals to ensure the arrangement matches your tax and estate planning goals.

Disclaimer: This post is for general information only and is not legal or tax advice. Consult your attorney and tax advisor about your specific circumstances.