Gift Splitting

Gift splitting is a tax strategy that allows a married couple to combine their individual annual gift tax exclusions and unified estate and gift tax credits, enabling them to give a larger gift to a recipient without incurring gift tax liability.
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Definition of Gift Splitting

Gift splitting is a tax strategy employed by married couples in the United States to maximize their annual gift tax exclusions. Under this strategy, a husband and wife can combine their individual gift tax exclusions and unified estate and gift tax credits to make larger gifts to recipients without incurring gift tax liability. When gift splitting, the consent of both spouses is required, even if only one spouse has sufficient assets to make the gift.

Examples of Gift Splitting

  1. Annual Gift to Child: For instance, in 2011, under IRS regulations, each spouse had an annual gift tax exclusion of $13,000 per donor, per donee. By combining their exclusions, a married couple could jointly give their child $26,000 annually without incurring gift tax.

  2. Educational Expenses: Suppose a couple wants to help their grandchild with college tuition. They can each give $15,000 in 2021, totaling $30,000, under gift splitting, thereby avoiding the gift tax.

Frequently Asked Questions (FAQs)

Q1: Do both spouses need to have equal amounts of assets to engage in gift splitting? A1: No, only one spouse needs to have sufficient assets, but both must consent to the gift splitting.

Q2: Is gift splitting limited only to gifts given within a calendar year? A2: Yes, gift splitting applies to the annual gift tax exclusion, which is calculated on a per calendar year basis.

Q3: Can gift splitting affect estate taxes? A3: Gift splitting can reduce the value of a couple’s taxable estate, potentially lowering their estate tax liability.

Q4: How does gift splitting affect filing requirements? A4: Each spouse must file a Form 709 (United States Gift (and Generation-Skipping Transfer) Tax Return) to notify the IRS of the split gift.

Q5: Are there any special rules for gifts to non-citizen spouses? A5: Yes, there is a lower annual gift tax exclusion amount for gifts to non-citizen spouses, and special rules may apply.

  • Annual Gift Tax Exclusion: The amount that an individual can give to any number of people each year without incurring gift tax. As of 2021, this amount is $15,000 per donor, per donee.

  • Unified Estate and Gift Tax Credit: A unified credit established by the federal government allowing individuals to transfer a specific amount of assets tax-free over their lifetime, applicable to both lifetime gifts and estate transfers upon death.

  • Form 709: The IRS form used for reporting gifts that exceed the annual exclusion amount and for electing gift splitting.

Online References

Suggested Books for Further Studies

  • Estate and Gift Taxation by Karla W. Simon
  • Essentials of Federal Income Taxation for Individuals and Business by Linda M. Johnson
  • Federal Estate and Gift Taxes: Analysis with Forms by CCH Tax Law Editors

Fundamentals of Gift Splitting: Estate Planning Basics Quiz

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