It may be possible to double your gifting by using spousal “gift-splitting.” Spouses may elect to split gifts made to others. If they do so, they must split all the gifts made by the other spouse to others for that year. For example, let’s say John made gifts of $30,000 to each of his five siblings, Aaron, Betty, Charlie, Darlene, and Ed. Let’s say the gifts qualify for the annual exclusion because they are of present interests. If John makes the gifts alone, then each gift of $30,000 would be reduced by the annual exclusion of $16,000 and would result in use of $14,000 of his applicable exclusion ($12.06 million in 2022). So, he’d have used $14,000 x 5 = $70,000 for the gifts. If John’s spouse, Mary, wished to split the gifts, she may do so. However, she must split all the gifts or none of them. So, if Mary doesn’t like Ed, she cannot choose to split the gifts to Aaron, Betty, Charlie, and Darlene, but not the gift to Ed. If she chooses to split all the gifts, she’d be treated as making a gift of ½ of $30,000, or $15,000, to each of John’s siblings. Mary’s annual exclusion would cover her half of each of these gifts and neither John nor Mary would need to use any of their applicable exclusion. Mary would consent to split the gifts by signifying such consent on John’s Form 709 for the year of the gift, thus consenting to split all his gifts for the year.
Interestingly, gift-splitting is effective only for gift tax purposes, not for estate tax purposes. This can be quite important. For example, let’s say John made the gifts to his siblings in an irrevocable trust which included Mary as a beneficiary. If Mary made a gift to a trust of which she’s a beneficiary, it could cause inclusion in her taxable estate under section 2036. However, if Mary merely splits the gift made by John, it would not cause inclusion in her taxable estate because she would only be considered to have split the gift for gift tax purposes and not estate tax purposes.
Spousal gifting can be confusing. While U.S. citizen spouses can give an unlimited amount of money to each other, a gift to a non-citizen spouse doesn’t qualify for the unlimited marital deduction. Instead, such a gift would need to qualify for the annual exclusion. In other words, it would need to be a gift of a present interest. There’s also a limit for such gifts to a non-citizen spouse. In 2022 that limit is $164,000.
Spousal gift-splitting can be a useful technique to consider as you plan your gifting strategy for 2022!
Steve Hartnett, J.D., LL.M (Tax)
Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (858) 453-2128