Insight

Are you and your spouse considering “splitting” gifts?

Are you and your spouse considering “splitting” gifts? | estate planning cpa in elkton md | Weyrich Cronin & Sorra

Gift splitting can be a valuable estate planning tool, allowing you and your spouse to maximize the amount of wealth you can transfer tax-free. But in some cases, it can have undesirable consequences, so be sure that you understand the implications before making an election to split gifts.

Gifts of separate property

Gift splitting is helpful if you wish to minimize taxes on gifts of separate property (as opposed to jointly owned or marital property). Suppose, for example, that in 2022 you give your child $32,000 in stock that’s your separate property. Your annual gift tax exclusion for 2022 shields half of that amount from gift taxes, but the remaining $16,000 is taxable. However, if you and your spouse elect to split gifts, half of the gift is deemed to be from your spouse and is shielded from tax by his or her 2022 exclusion.

It’s important to understand that when you make an election to split gifts on a gift tax return, it applies to all gifts made by you or your spouse during the year. In some cases, this can have unintended consequences, especially if you plan to leverage your federal gift and estate tax exemption amount, which is $12.06 million in 2022.

Because the exemption is scheduled to return to an inflation-adjusted $5 million in 2026, many people are making large gifts to their loved ones before the current exemption sunsets. But if you elect to split gifts, you risk losing the benefit of the increased exemption.

For example, let’s say that in 2022 you transfer interests in your separately owned business valued at $12.06 million to your children. If you and your spouse elect to split gifts this year, then each of you will be deemed to have made a gift of $6.03 million. Now let’s say that when the exemption amount drops in 2026, the inflation-adjusted amount ends up being $6.03 million. This means that you and your spouse will both have used up your exemptions. Had you not split gifts in 2022, however, you would have enjoyed your full $12.06 million exemption amount, while preserving your spouse’s $6.03 million exemption.

Follow the rules

It’s important to understand the rules surrounding gift-splitting to avoid unintended — and potentially costly — consequences. We’d be pleased to provide additional details and answer any questions regarding making gifts.

© 2022

 

Related Insights

Watch out for “income in respect of a decedent” issues when receiving an inheritance - tax accountant in washington dc - weyrich, cronin and sorra

Estate & Wealth Transfer Planning

Watch out for “income in respect of a decedent” issues when receiving an inheritance

Most people are genuinely appreciative of inheritances, and who wouldn’t enjoy some unexpected money? But in some cases, it may turn out to…
How renting out a vacation property will affect your taxes | estate planning cpa in harford county md | Weyrich, Cronin & Sorra

Estate & Wealth Transfer Planning

How renting out a vacation property will affect your taxes

Are you dreaming of buying a vacation beach home, lakefront cottage or ski chalet? Or perhaps you’re fortunate enough to already own a vacation…
Inheriting stock or other assets? You’ll receive a favorable “stepped-up basis” | estate planning cpa in elkton md | Weyrich, Cronin & Sorra

Estate & Wealth Transfer Planning

Inheriting stock or other assets? You’ll receive a favorable “stepped-up basis”

If you’re planning your estate, or you’ve recently inherited assets, you may be unsure of the “cost” (or “basis”) for tax purposes. How…

Connect with us

Use the form below to send us an email. WCS responds directly to all inquiries and general questions within 24 hours of posting.

This contact form is deactivated because you refused to accept Google reCaptcha service which is necessary to validate any messages sent by the form.