Can Gift-Splitting Go Wrong?

We are all aware of gift-splitting, and most of us have probably recommended that our clients double their annual gift tax exclusion amount by gift-splitting with their spouse. The rule is simple enough—a married couple can split a gift by one of the spouses so that each spouse is deemed to have gifted half—but there are intricacies to the rule that every advisor needs to be aware of.

Gift Splitting Review

Most gifts are subject to the gift tax, but a majority of people never pay gift tax, due to the $13,000 annual exclusion and $5 million lifetime exemption ($5,120,000 for 2012). Gift splitting allows a married couple to double their exclusions by making joint gifts to third parties for gift tax purposes. So, for example, if Father makes a lump sum $25,000 gift to son, the couple can elect to split the gift, and the entire gift will be free of gift tax under the $13,000 annual exclusion which is doubled to $26,000 for the couple.

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This entry was posted on Monday, November 21st, 2011 at 8:00 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.