Gift-splitting: The Intricacies of §2513 of the Code

The rules for gift-splitting for married couples are complex and can have unintended tax consequences if not done properly. Three requirements must be met for a married couple to elect to split gifts made to third parties. The gifts must also be ascertainable, meaning the portion of the gift to the third party must be clearly identifiable at the time of the gift. Couples cannot split gifts to each other, and there are limitations on which gifts can be split, such as gifts where one spouse gives the other a general power of appointment. In the Kass case, a spouse gave stock to a trust that paid the other spouse income for life and allowed for extra payments from the trust’s savings. The Tax Court said the portion of stock given to other people was unclear, so the gift couldn’t be split for tax purposes.

In the Wang case, a spouse set up a trust that gave the other spouse income for life and allowed them to take money from a separate part of the trust. The trust also gave the other spouse the power to decide where the money should go after they passed away. The donor spouse gave a big gift to a trust, and the IRS said they didn’t report it correctly. The IRS said they can’t split the gift with their spouse because it’s not clear how much of the gift was for other people. The Tax Court ruled that certain trust interests were not eligible for gift-splitting because the standard for distributing the trust assets was not specific enough. A Private Letter Ruling from the IRS allowed gift-splitting for trusts where the income and principal could be used for the beneficiary’s health, maintenance, education, and support. The election to gift-split is typically made by the donor spouse and consented to by the nondonor spouse, or by their executors if one of them has passed away. If both spouses are required to file a gift tax return, their consent to gift-split can be signified in a few different ways. Once consent is given, it can’t usually be revoked. If both spouses elect to gift-split, the gift tax liability is joint and several. If one spouse pays the gift tax, it’s not considered a separate gift. If an election to gift-split is made, the gift will also be treated as if made one-half by each spouse for purposes of the GST tax. A husband and wife wanted to give a gift to their grandchildren and split the gift for tax purposes. If the husband or wife dies within three years of making the gift, the amount of the gift and the gift taxes paid may be included in their estate for tax purposes. If the nondonor spouse dies first, the executor of their estate can allocate GST tax exemption to the gift. If the donor spouse dies after the nondonor spouse, the nondonor spouse’s estate can claim a refund and the gift may not be included in their adjusted taxable gifts. If one spouse gives a gift to a trust and dies within three years, the value of the gift will be included in the estate of the spouse who gave the gift. This means the gift tax exemption of the other spouse could be wasted. It’s important for your lawyer and accountant to work together to make sure your gifts are reported correctly. This is an article about estate planning and tax law. It was written by a lawyer and an associate at a law firm. They talk about specific sections of the Internal Revenue Code and Treasury Regulations. The lawyers are experts in their field and have published articles and given lectures on the subject. The article is meant for members of the Tax Section of the Florida Bar.

Source: https://www.floridabar.org/the-florida-bar-journal/gift-splitting-the-intricacies-of-2513-of-the-code/