Gift Splitting

Gift Splitting Annual Gift Tax Exclusion Unified Estate and Gift Tax Credit Estate Planning IRS Regulations Tax Strategy Federal Gift Tax
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

### Does the gift-splitting strategy require both spouses to have equal assets? - [ ] Yes, both spouses need equal assets to split gifts. - [x] No, only one spouse needs sufficient assets for the gift. - [ ] Both spouses must contribute equally to the gift. - [ ] Only the wealthier spouse can use gift splitting. > **Explanation:** Gift splitting does not require both spouses to have equal assets. Only one spouse must have sufficient assets, as long as both consent to the gift. ### What is the maximum a married couple could gift their child annually without incurring a gift tax in 2011? - [ ] $13,000 - [ ] $20,000 - [x] $26,000 - [ ] $50,000 > **Explanation:** In 2011, each spouse had an annual gift tax exclusion of $13,000. Combined, they could gift a child $26,000 without incurring gift tax. ### Which IRS form is used to report split gifts? - [ ] Form 1040 - [x] Form 709 - [ ] Form 1065 - [ ] Form 4562 > **Explanation:** Form 709 is the IRS form used to report gifts exceeding the annual exclusion amount and to elect gift splitting. ### Does engaging in gift splitting impact the couple's lifetime unified estate and gift tax credit? - [x] Yes, it reduces the available credit. - [ ] No, it does not impact the credit. - [ ] Only if the gift exceeds $1 million. - [ ] Only at the death of one spouse. > **Explanation:** Gift splitting reduces the couple's available lifetime unified estate and gift tax credit as it counts towards their lifetime exclusion. ### What is the condition necessary for gift splitting? - [x] Both spouses must consent to the gift. - [ ] Only one spouse must consent. - [ ] Consent must be notarized. - [ ] A legal witness must be present. > **Explanation:** Both spouses must consent to the gift splitting for it to be valid per the IRS regulations. ### What might affect the annual gift tax exclusion for non-citizen spouses? - [ ] Country of origin - [x] Lower exclusion amount - [ ] Higher exclusion amount - [ ] There is no effect > **Explanation:** Different rules and a lower annual exclusion amount apply to gifts given to non-citizen spouses. ### How does gift splitting influence estate tax planning? - [x] It can reduce taxable estate value. - [ ] It increases taxable estate value. - [ ] It has no impact on estate taxes. - [ ] It only impacts gift taxes. > **Explanation:** Gift splitting can reduce the value of a couple’s taxable estate, potentially lowering estate tax liability. ### What is required alongside the gift-splitting form? - [ ] Proof of equal gifts - [x] Both spouses' signatures - [ ] Only donor spouse’s signature - [ ] No additional requirement > **Explanation:** Both spouses must sign Form 709 to notify the IRS of the gift splitting. ### Which type of gift cannot be split? - [ ] Monetary gifts - [ ] Real estate gifts - [x] Gifts to a non-qualifying trust - [ ] Vehicle gifts > **Explanation:** Gifts to certain non-qualifying trusts cannot be split under IRS regulations. ### Who should be involved in the decision to engage in gift splitting? - [ ] Only the wealthier spouse - [x] Both spouses and possibly a tax advisor - [ ] A single decider - [ ] The IRS directly > **Explanation:** Both spouses must consent to gift splitting, and involving a tax advisor can provide guidance and ensure compliance with IRS rules.

Thank you for diving into the intricacies of Gift Splitting and taking on our challenging quiz questions. Your dedication to expanding your tax planning knowledge is commendable!

Wednesday, August 7, 2024
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