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I'm a cosigner on my father's bank accounts. More specifically, the bank account is a multi party account with right of survivorship and I'm told that means I'll still have access to the money in it after my dad dies.

The will specifies that the money in the account should be split between my sister and I, 50/50, however, the fact that I have access to the account means that that trumps the will, as I understand it.

My question is: how can I transfer 50% of the funds in that account to my sister without her having to pay income tax on that money? The IRS gift tax limit is currently $18,000 so I could gift her $18,000 tax free but any more than that and she'd have to pay taxes on it.

Or would it just be assumed that any transfers I do after my dad dies are for inheritance purposes? If that were the case I feel like you'd probably need to document that somehow?

(I'm a cosigner on the account whereas my sister isn't because I pay my dad's bills whereas my sister doesn't)

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DISCLAIMER: this is speculation without knowing the specifics of what the will actually says (regardless of your interpretation)

the fact that I have access to the account means that that trumps the will,

Not after your father passes. While technically you have access to all of it, legally your sister is entitled to half of it (if the will states that explicitly), so if you were to go out and spend it all, you would have to make sure your sister gets what she is entitled to (or a judge may force you to do so).

The IRS gift tax limit is currently $18,000 so I could gift her $18,000 tax free but any more than that and she'd have to pay taxes on it.

The recipient of a gift does not pay taxes, and it is not income. It's the giver that must pay taxes. Plus, the limit is per person, so you could give $18,000 and your father could give $18,000 ($36,000 total per year) without having to pay any gift tax.

If you transfer after he passes, then it is not a gift. It is executing the terms of the will.

That said, you really need to talk to a local estate planning attorney to make sure all of this is set up properly and your misunderstandings are addressed. It will be much cheaper now to spend a few hundred dollars (depending on the complexity of the estate) get things set up properly to plan for his passing than to mess it up afterwards and pay a attorney (and possibly court costs) to fix it.

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    If you spend it all before your father passes, then your sister gets half of what is left when he does pass. - no, if this is done frivolously then it would be embezzlement and the OP would be required by the judge to repay. If egregious it may be considered criminal (embezzlement is a crime) and elder abuse.
    – littleadv
    Commented Feb 27 at 17:42
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    True - there could be ramifications; I was more illustrating that there were differences between before and after death. I'll remove that part.
    – D Stanley
    Commented Feb 27 at 17:57
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    Worth noting that the annual gift tax limit is not the amount at which gifts start being taxed, it's simply the amount at which they must be reported. Gifts in excess of the annual limit count toward the lifetime exclusion, but only gifts that bring the excess-annual amount above the lifetime exclusion are taxed. The lifetime limit is currently north of $10M - the OP and their father can each gift much, much more than $18k without incurring any tax bill at all (unless they've already gifted millions).
    – Nuclear Hoagie
    Commented Feb 27 at 18:30
  • The giver also has the option of counting the excess towards the life-time exclusion. They can choose to pay the gift tax if they want, leaving the limit applied to any eventual estate taxation alone.
    – chepner
    Commented Mar 2 at 15:10
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You should really talk to a lawyer. I'm not a lawyer. Also, laws may change between different states within the United States.

I'm a cosigner on my father's bank accounts. More specifically, the bank account is a multi party account with right of survivorship and I'm told that means I'll still have access to the money in it after my Dad dies.

Why are you a cosigner? Usually this is done with the intention of helping an elderly parent manage their business. It is still their money. Later you confirm that this is the situation - you're a cosigner to help your dad pay his bills.

You cannot do with this money as you wish, only as your dad wishes. In many states there are laws to prevent abuse of the elderly and manipulations where people (including close family) abuse access given to them to siphon money away.

The will specifies that the money in the account should be split between my sister and I, 50/50, however, the fact that I have access to the account means that that trumps the will, as I understand it.

Absolutely not. Why would you understand that?

how can I transfer to my sister 50% of the funds in that account without her having to pay income tax on that money? The IRS gift tax limit is currently $18,000 so I could gift her $18,000 tax free but any more than that and she'd have to pay taxes on it.

The money is not yours to transfer, it's your dad's. Once the parent passes, then the money transfers. In order to transfer the money the will will have to go through the probate process with the court. If the account owner already gave a "transfer on death" order for this specific account to this specific bank, then the bank will execute that order and will arrange for transfers accordingly. TOD orders trump wills.

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  • "If the account owner already gave a transfer on death order" The question already states that "the bank account is a multi party account with right of survivorship".
    – Ben Voigt
    Commented Feb 27 at 19:22
  • @BenVoigt that's not TOD, and would probably go through probate, depending on state laws
    – littleadv
    Commented Feb 27 at 19:38
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    It's not TOD, but it might be considered a beneficiary designation (which is what supercedes the will).
    – Ben Voigt
    Commented Feb 27 at 19:41
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You're Probably Fine

Unless you plan on giving away more than 13 Million over the course of your life, you will not pay any tax, regardless of the legal status of the account.

From the IRS website:

Every donor is allowed a lifetime GST exemption. The amount of the exemption for 2023 is $12,920,000.

You can give away 18k a year as your yearly exemption, and then amounts above that count against your lifetime exemption.

Talk to an Estate Lawyer

It may still be worthwhile to talk to an Estate lawyer, just to give your siblings the warm fuzzy that you're playing them straight.

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  • Nit: the lifetime exclusion is gifts over the yearly exemption PLUS estate if you leave one. And the amount is scheduled to revert to ~6.5m plus inflation in less than two years, if OP lives that long as seems likely -- and Congress doesn't change the scheduled reversion, which is much harder to predict.
    – dave_thompson_085
    Commented Feb 28 at 2:47

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