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bobweissman

Level 6

Question

Form 709: Gift splitting confuses me

Forum|Forum|6 years ago
January 9, 2020
4 replies
0 views

The wife and I gave a large enough gift in 2019 to require Form 709. We are in CA, a community property state.

Form 709 instructions say we must each file a form for half the total gift because it was community property. That part I understand.

What I don't understand is the term "gift splitting" and the split gift part of 709. I am guessing that "gift splitting" does not apply and I should leave it blank because we're each filing for half the total gift. Right?

Forms

Bsch4477

Level 15

Complete lines 12-18 if the gift was from community property.

bobweissmanAuthor

Level 6

I wasn't asking which lines to complete. There are lines 12-18 in Part 1 and Part 2. I understand both of those Parts. I believe you meant Part 1.

The question is about Form 709 Schedule A Part 1, "Gifts Subject Only to Gift Tax", which has no line numbers.

The instructions are weird. Page 1, "Who must file" says community property requires 2 separate forms.

Page 6, "Split Gifts" also says 2 separate forms are required when gift splitting with a few inapplicable (to us) exceptions. Schedule A of the form talks about dividing the gift in half. But we already divided the gift in half, half on each of 2 709s.

It's as if the IRS is being purposely confusing. First time that ever happened!

Bsch4477

Level 15

I understand all that. My question is simply whether "gift splitting" is something I need to do. I'm going to assume it's not because the gift is already split. It's just the form instructions which confuse me. So I decided to phone the IRS.

After 46 minutes on hold, I spoke to a rep via their special Gift & Estate Tax phone number only available 8:00am - 3:30pm EASTERN time (I'm in CA).

These friendly phone reps do not provide help completing Form 709. The Tax Assistance group no longer exists, she told me. I assume budget cuts got them the axe. The current "special" group can only help with the mechanics, as in you sent a form to the wrong address or want to inquire about a form's status. SMH.

You are correct. You have already split the gift by each of you filing a form for half of the gift.

Definition of a Split Gift: A split gift refers to a gift that is made by a spouse to a third person. The gift is given to a third person for gift tax purposes. It is also known as gift splitting or gift splitting election. ... Under split gift, a married couple can treat gifts made by one spouse as if they were made one-half by each spouse.

Fran2021

Level 2

My wife and I recently refinanced our second home and added our daughter to the mortgage and deed. She will now be living in the house full time as a co-owner.

On investigating I discovered an example which stated that this could be handled as a gift and sell transaction. This is how it was explained. My daughter would not only receive half ownership in the house, but also assume half the mortgage. Is this allowable and if so once the calculations are done, if the gift value is less than $15,000 do I need to submit a 709 since she is now a co-owner and co-mortgagee. Here is a numerical example.

House value is $200,000 so we gift her $100,000

Mortgage is $180,000 so she assumes $90,000

Therefore we have gifted her $10,000 which is less than the $15000 allowable amount.

Since the gift is less than $15,000 do we still need to submit a 709.

Anonymous_

Level 15

@Fran2021 wrote:
Since the gift is less than $15,000 do we still need to submit a 709.

No, you do not need to file a Form 709 in this instance.

Your equity in the second home is $20,000 so that figure would be the maximum amount of the gift if you gave your daughter a 100% interest. Since you are giving her one-half, the amount of the gift is $10,000, which is well under the amount of the annual exclusion.

Fran2021

Level 2

I understand I do not need to file the 709 because the amount is less than $15,000. But I guess I have 2 other questions.

1. Is the explanation of my daughter not only getting half the value and half the mortgage correct and legitimate?

2. Because it is ownership in property would the 709 still be required, even if the amount is less than $15,000.

madmanc20

Level 5

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.

Bsch4477

Level 15

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.

madmanc20

Level 5

@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.

@Anonymous_ 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.