I've read countless documents regarding gifts to a spouse and ALMOST everyone of them says that one can give limitless gifts to a spouse without any gift taxes being incurred. However, I recently ran into Form 709 and its instructions. Form 709 is apparently to Gifts what the 1040 is to Income.
I am simply adding my wife to the Grant Deed on our home that I bought long before I met her and we later got married. The lawyer that put this together wrote it up as a Gift. Basically I am deeding the home from just me as a single man (my status when the last deed was written) to both me and my wife as a married man and a married woman.
And it all seems like a non-issue as far as gift taxes are concerned that there are none if I Gift property to my wife. That is until I saw this terrible paragraph in the Instructions for Form 709. On page 2 of the Instructions for Form 709, there is the following,
"Gifts to your spouse... You must file a gift tax return if you made any gift to your spouse of a terminable interest that does not meet the exception described in Life estate with power of appointment..."
Can anyone say what that is??? "Terminable" is related to "terminate" and when I looked for what this might mean in the sense intended here, I found words that spoke of "having strings attached". But what does that mean??? And the part about "Life estate with power of appointment" isn't defined anywhere else in this document at all.
Getting hit with Gift taxes on this transfer could cost us hundreds of thousands of dollars so I have to understand what this strange paragraph means. I had never even heard of form 709 until a couple days ago and I thought the Gifts to Spouse deal was easy. But now???!!! Can anyone offer any help on what the above means??
Taxes do not apply in your situation. Simply adding a spouse to a deed does not incur any federal or state taxes period. The reason for adding her to the deed, is because you acquired the home before you were married to her. Adding her, makes it community property with full rights of survivorship, as your spouse she would simply inherit it tax free upon your death...Even if you failed to add her now, she would still inherit it (( UNLESS!!! )) some unscrupulous person or person's tries to make claim to it, that is if you die without a will or living trust...So it's advisable to make her joint owner of all assets and accounts to avoid that possibility. If you wanted to give / transfer sole ownership of the home to her now, where she becomes the sole owner with " No strings attached " or any asset or amount of cash for that matter... It would then fall under ( Unlimited Marital Deduction ) completely tax free and it would not count against your lifetime combined gift and estate tax, which is approximately $5,250,000. which could still be used for other family members for example...Bottom line is your spouse will inherit all of your assets tax free unless otherwise specified in a will or trust.
I'm not sure anyone here is competent enough in that field to answer the question. If it is a substantial amount you might consider discussing it with a Probate or Tax Attorney.
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