Form 709: Gift splitting confuses me

[Bsch4477]

If you are concerned about you or your spouse exceeding the more than 11 million gift tax exclusion your decisions about estate planning really should not be influenced by someone in this forum. Sounds like you have qualified people to advise you. That being said, the marital gift exclusion is unlimited. I am not a financial advisor but it seems to me that the community property issue is moot since one spouse can “gift” community property to the other to make it their separate property and conversely commingle separately property into community property. So assets are really fungible. 

[tagteam]

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@madmanc20 wrote:

- 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.

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I agree with @Bsch4477 and the foregoing is good advice, particularly considering the following:

Certain transfers, particularly transfers to a trust, that are not subject to gift tax and are therefore not subject to the GST tax on Form 709 may be subject to the GST tax at a later date. This is true even if the transfer is less than the $15,000 annual exclusion. In this instance, you may want to apply a GST exemption amount to the transfer on this return or on a Notice of Allocation. However, you should be aware that a GST exemption may be automatically allocated to the gift if the trust that receives the gift is a “GST trust” (as defined under section 2632(c)).

[madmanc20]

@Bsch4477 Thanks. Good advise on getting professional advice. Am scheduled to get input from my very senior (leads an estate department at big law firm), conservative AND clear estate attorney 🙂 What I have seen is even expensive pros often take very different views depending on interpretation and conservatism. Hence searching on the net besides talking to multiple professionals to gain multiple viewpoints. Need to develop own comfort level for tax law interpretation after gathering advice.

An example of differences came up in late 2020 when many estates executed SLATs to remove asset from the estate considering the likelihood of $11M gift limit reduction in the future. I believe these involve shifting fungible community property to separate property for short duration (a couple of weeks) before executing the SLAT. My estate attorney indicated IRS is unlikely to agree, is an audit risk, and proper community property separation would take multiple years to execute. We didn't pursue this path while many did.

Anyhow, very good points on talking to professionals. Just noting often will encounter different views where tax code have ambiguities and perceived loop holes. Estate tax being much less practiced than personal income tax yields greater variability in approach (709 form is really quite terribly designed, not much info or tools, pros differ in views and are expensive) So the tax payer need to develop comfort with the interpretation amongst the professionals.

@tagteam Good note on Trust gift and GST allocation and yes depends on the type of transfers and Trust. And indeed automatic GST allocation mechanism is available for GST Trusts.

I have consistently heard from so many professionals automatically say no need to file 709 if gift under annual exclusion. But differences in GST rules and future decisions (may want allocation GST credits differently than gift at some point)  suggest its best to be aware of GST consequences and think through them. The reality is the only person accountable for this is your heirs when filing 706 in the distant future.

[tagteam]

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@madmanc20 wrote:

The reality is the only person accountable for this is your heirs when filing 706 in the distant future.

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Exactly, and I suspect there will be many more heirs who have to deal with filing a 706 in the future (perhaps, not-so-distant future).

[dill4fam]

"

• Likewise, each spouse must file a gift tax return if they have made a gift of property held by them as joint tenants or tenants by the entirety."

from......https://www.irs.gov/instructions/i709

So if a married couple equally own a joint brokerage account (JTWROS) and they both agree to transfer stock worth $17,000 to an adult child ($8,500 gift from husband, $8,500 gift from wife)...(NOT a community property state).

1) Are they required to each file Form 709 indicating they each made a $8,500 gift?

OR

2) The primary SSN (husband) on the MFJ tax return files a Form 709 reporting all the gift and then completes Part 1, Lines 12 - 18, with spouse giving consent/signature to "split the gift"?

1 or 2?

Now add that the MFJ couple gifted two children the same way and multiple gifts to each (each of 2 children received a cash gift and stock). So each line lists the donee, gift info, etc...How are you supposed to fit all of the requested information on a 3" width Column B (see below)? Is attaching a page allowed?

"

Column B

Describe each gift in enough detail so that the property can be easily identified, as explained below.

For real estate, give:

• A legal description of each parcel;

• The street number, name, and area if the property is located in a city; and

• A short statement of any improvements made to the property.

For bonds, give:

• The number of bonds transferred;

• The principal amount of each bond;

• Name of obligor;

• Date of maturity;

• Rate of interest;

• Date or dates when interest is payable;

• Series number, if there is more than one issue;

• Exchanges where listed or, if unlisted, give the location of the principal business office of the corporation; and

• CUSIP number. The CUSIP number is a nine-digit number assigned by the American Banking Association to traded securities.

For stocks:

• Give number of shares;

• State whether common or preferred;

• If preferred, give the issue, par value, quotation at which returned, and exact name of corporation;

• If unlisted on a principal exchange, give the location of the principal business office of the corporation, the state in which incorporated, and the date of incorporation;

• If listed, give principal exchange; and

• CUSIP number.

For interests in property based on the length of a person's life, give the date of birth of the person. If you transfer any interest in a closely held entity, provide the EIN of the entity.

For life insurance policies, give the name of the insurer and the policy number."

[Bsch4477]

Since each of you can give $15,000 to another individual with no reporting or tax consequences your combined gift can be $30,000.  But yes, if you give multiple gifts requiring a 709 you can attach a statement to report the additional gifts. 

[Anonymous]

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1.   You can only split gift if the gift came from your individual account. That is, an account that's in your own name solely (without your spouse's name on it). The account only holds money you had before you got married, or maybe the money was an inheritance from your folks given only to you, or you and your spouse had a prenup specifying that the money belongs only to you.
   
   If the source of your gift is NOT from such an account, then forget about gift splitting.

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Reading the form 709 instructions

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Lines 12–18. Split Gifts

A married couple may not file a joint gift tax return. However, if after reading the instructions below, you and your spouse agree to split your gifts, you should file both of your individual gift tax returns together (that is, in the same envelope) to help the IRS process the returns and to avoid correspondence from the IRS.

If you and your spouse both consent, all gifts (including gifts of property held with your spouse as joint tenants or tenants by the entirety) either of you make to third parties during the calendar year
will be considered as made one-half by each of you if all of the following apply.

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From the above I seem to read it as gifts held jointly with the spouse (i.e. joint checking account such as JTWROS including community and non community states) can be treated as eligible for gift splitting. Am I misunderstanding this?

[Anonymous]

Regarding whether the spouse needs to file a separate gift tax return the 709 instruction also seem to state that it's not required under one of two conditions:

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When the Consenting Spouse Must Also File a Gift Tax Return

In general, if you and your spouse elect gift splitting, then both spouses must file their own individual gift tax return. However, only one spouse must file a return if the requirements of either of the exceptions below are met. In these exceptions, gifts means transfers (or parts of transfers) that do not qualify for the political organization, educational, or medical exclusions.

Exception 1. During the calendar year:
• Only one spouse made any gifts,
• The total value of these gifts to each third-party donee does not exceed $32,000, and
• All of the gifts were of present interests.

Exception 2. During the calendar year:
• Only one spouse (the donor spouse) made gifts of more than $16,000 but not more than $32,000 to any third-party donee,
• The only gifts made by the other spouse (the consenting spouse) were gifts of not more than $16,000 to third-party -6- Instructions for Form 709 (2022) donees other than those to whom the donor spouse made gifts, and
• All of the gifts by both spouses were of present interests.

If either of the above exceptions is met, only the donor spouse must file a return and the consenting spouse signifies consent on that return.

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The instructions also state "Contributions to QTPs do not qualify for the education exclusion."

So the way I'm reading this, if one spouse makes the 529 contribution (QTP) and it's upto the maximum limit for a couple ($32,000 in 2022), only one spouse would need to file the return with the Gift splitting option checked.

Am I misreading the exception clause in the instructions?

IF, they are selecting a "superfunding" scenario, $170,000 over 5 years (Schedule A part B checked, the amount per year filled in Column D and F would be $34,000 and Column G and H would be $17,000)

Then the 709 form instructions in Line B QTP programs (5 year election) goes on to say:

"If you are electing gift splitting, apply the gift-splitting rules before applying the QTP rules. Each spouse would then decide individually whether to make this QTP election."

In this case, how would the spouse select gift splitting? Would each spouse file a gift tax return with both selecting Gift Splitting (and file in the same envelope)? Wouldn't it be easier to each spouse to just file a separate 709 form without any gift splitting? This part is very confusing when combining QTP 5 year election with gift splitting (or not)!