Have a similar community property gift question and a note regarding GST
Community Property Gift
- In WA state, a community property state
- Gifted both son's Irrevocable Trust a lot of funds from me+wife's investment account in 2020 (far beyond annual exclusion) anticipating lifetime gift/GST limit to reduce.
- Investment Advisor suggested a strategy to gift 100% from one spouse, this preserves most gift credits for the other spouse.
709 instructions states clearly gift of community property are considered 1/2 gift from each spouse. My investment account is considered community property. It seems the above none 50/50 gift of community property strategy is invalid. Correct?
Community Property or None Community Property Gift?
- Besides the above community property gift, I am also gifting an exercised stock option to son's Irrevocable Trust. The stock option was granted to me (not wife). Exercise was paid by community property funds. Exercise directly titled it to Son's Irrevocable Trust. Should I consider this community property gift or not? I'm guessing yes since the exercise was paid by community property funds?
A Note on GST
- I constantly hear people (including CPA) say if under annual exclusion, no need to file 709. This is tricky if GST Trust is the donee.
- Many Children's Irrevocable Trust is setup what is commonly called a GST Trust. Assets in this irrevocable trust is obviously no longer in donor's estate (no estate tax when you die) . But more importantly, it is also not in children's estate (no estate tax when they die). But GST exemption must be allocated to avoid GST tax when the child passes.
- Most GST Trusts do not qualify for annual GST exclusion. This is because the donor is not gifting it to skipped person (eg. grandchild) on the year of the gift. Therefore, GST has to be allocated to avoid GST tax when the child passes. This means remaining GST and gift credit differs immediately due to gift credit benefiting from annual gift exclusion while GST credits can not benefit from annual GST exclusion. Somewhere this record need to be kept. 709 is probably the best place.
- Some CPAs/Estate Lawyers advise doing 709 even under annual gift exclusion when donee is GST Trusts for record keeping purposes. When 706 is filed many years from now after your passing, it leaves a proper GST allocation trail.
