four brown gift boxes on white surface

 

What Are Split Gifts?

Gift splitting is a privilege extended to married persons. It allows you to treat a gift of separate property made by you to a person other than your spouse as made half by you and half by your spouse. Gift splitting may be advantageous because it:

  • Effectively doubles the $15,000 (in 2019 and 2020) annual gift tax exclusion to $30,000 (in 2019 and 2020)
  • May cause the gift tax rate to be lower because the federal gift tax rate schedule is graduated
  • Effectively allows both spouses' gift and estate tax applicable exclusion amounts ($11,580,000 in 2020, $11,400,000 in 2019) to be used

Example(s): In 2020, Ted gives $165,000 to his father-in-law, Henry. Ted deducts the annual exclusion of $15,000 and incurs a tentative federal gift tax in the amount of $38,800 ($150,000 x the applicable tax rates). Ted uses $150,000 of his applicable exclusion amount and no gift tax is due, If Ted's spouse, Jane, had consented, each would be considered as having made a $67,500 taxable gift ($165,000 - $30,000 annual exclusions / 2), and the tentative gift tax would be $14,950 each ($29,900 for both). They each use $67,500 of their applicable exclusion amounts and no gift tax is due. They save $15,000 more of their applicable exclusion amounts for future use if gifts are split.

Tip: The annual gift tax exclusion is indexed for inflation. The exclusion for 2020 is $15,000, but this amount may change in future years.

Retirekit CTA

What Is Required To Use The Gift-Splitting Privilege?

The requirements for utilizing the gift-splitting privilege are:

  • You and your spouse must be married and U.S. citizens or residents of the United States at the time you make the gift
  • Neither spouse may remarry before the end of the calendar year in which you make the gift
  • You must file a gift tax return for the year in which you have made a split gift (even if you otherwise would not need to) and you must have the consent of your spouse (consent for gift splitting is made on your gift tax return by your spouse's signature)
  • If you and your spouse decide to split gifts in any calendar year, this election will apply to all gifts made during that year

Caution: The IRS has the right to hold the consenting spouse liable for the entire gift tax owed on the consented-to gift.

Tip: Consent may be revoked up until April 15 of the year following the year in which the gift is made.

What Else Should You Know About Split Gifts?

Gift splitting is also allowed for federal generation-skipping transfer tax purposes. This allowance makes it easier to use each spouse's exemption. Your personal representative can elect to split gifts made prior to your death.

Spouses in community property states may elect to split gifts of separate property only. Gifts of community property are not eligible for any gift splitting because the gift is already considered made half by each spouse based on state law.

 

 

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

 

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

 

The Retirement Group is a Registered Investment Advisor not affiliated with FSC Securities and may be reached at www.theretirementgroup.com.



TRG Retirement Guide

Tags: Financial Planning, Lump Sum, Pension, Retirement Planning