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George F. Bearup, J.D. Senior Legal Trust Advisor

October 6, 2023

Spousal Gift-Splitting – the Basics

Take-Away: Gift-splitting by spouses is an effective way to use both spouses’ applicable exemption amounts when only one spouse owns the asset to be gifted. The challenge is to comply with the technical rules to timely make the election to ‘split-gifts.’

Background: Over the past few years, particularly since the federal transfer tax applicable exemption amount doubled and then started to be adjusted annually for inflation, individuals have been encouraged (sometimes even pushed) into making lifetime gifts in order to use their short-lived bonus applicable exemption amount before it disappears in 2026. Often those individuals are married and the opportunity to split their gifts between the spouses is appealing, since less of their applicable exemption amount is used to shelter the taxable gift. Accordingly, the Tax Code allows one spouse to make a gift to a donee but still have that gift treated as if one-half of the gift was made by each spouse. While gift-splitting by spouses can to be relatively straightforward, as with any Tax Code provision, some risks and mistakes can still lurk.

Split-Gift Requirements:  In order to qualify to make split-gifts the following requirements must be satisfied. [IRC 2013(a)]

  1. At the time of the gift, each spouse must be a U.S. citizen or a U.S. resident. Gifts made while one spouse is a nonresident may not be split. [IRC 2013(a)(1).]
  2. At the time of the gift, the spouses must be married to each other.
  3. If the spouses divorce during the calendar year in which the gift was made, they may still elect to split the gift that was made while they were married, so long as neither of them remarries during that same calendar year.
  4. Both spouses must signify their consent to the election to split their gifts.
  5. The election to split gifts applies to all gifts made during that calendar year, other than gifts the spouses make to each other.
  6. The election to split gifts in a calendar year is irrevocable, which applies to all gifts that were made during the calendar year.

Split-Gift Election: Both spouses must file a gift tax return for the same year if they elect gift-splitting. With gift-splitting, both spouses must sign the federal gift tax return, Form 709. However, the consent for each spouse may be signified on each spouse’s own gift tax return. Or, the consent of both spouses can be signified on one of the spouse’s timely filed gift tax return.

Gift Tax Return Technicalities: There are some technical rules to follow when spouses elect to split-gifts as reported on Form 709. Those technical requirements include the following:

One 709 Gift Tax Return: When only one spouse makes gifts during a year, and the aggregate gifts to any one individual do not exceed twice the annual exclusion amount ($17,000 X 2= $34,000) and the gifts are all present interest gifts, the donor spouse may file a single return on which the spouses  consent to split gifts without the non-donor spouse having to file a separate Form 709 Federal Gift Tax Return.

Annual Exclusion Gifts: When both spouses made gifts of present interests during the calendar year, and one spouse’s gifts satisfy the same technical requirements noted immediately above, and the other spouse’s gifts are to donees different from their spouse’s donees, but the gifts do not exceed the annual exclusion amount, only one spouse needs to file a Form 709 on which the split-gifts are reported.

Consents: The failure to sign the other spouse’s gift tax return in the box that connotes their consent can lead to gift tax and GST problems, due to the spouses missing the division of their separate gift and GST exemptions for the calendar year.  A spouse’s consent to gift-split can be provided at any time that follows the calendar year in which the gift was made. However, the spouses cannot elect gift-splitting if the IRS has sent a Notice of Deficiency for the gift tax to either spouse, regardless of when a gift tax return has been filed for that calendar year. [IRC 2013(b).] An agent can sign the consent on behalf of their principal if that spouse is unable to elect to split gifts within the time allotted for the election due to illness or absence. However, that gift tax return on which the election to split gifts is made must subsequently be ratified by the electing donor-spouse or a person who is responsible for the return’s  filing within a reasonable period after such person is able to do so. [Regulation 25.6019-1(h).]

Limited Revocation: If one spouse filed a gift return by the April 15 filing deadline, the other spouse may change the gift-splitting election with a return that is filed after that initial Form 709 and by the April 15 filing deadline by: (i) consenting to split-gifts when the first spouse to file did not make that election; or (ii) revoking an election to split-gifts by the first spouse to file. The election to split gifts may also be revoked by either spouse filing in duplicate with a signed statement of revocation by the April 15 deadline. As noted above, consent may not be revoked for an election to split gifts made after the April 15 filing deadline. [Regulation 25.2513.]

Prohibited Split-Gifts: A gift to a third-party over which the non-donor spouse receives a general power of appointment cannot be split.  [IRC 2513(a)(1).] Additionally, an interest in gifts to a third-party, a portion of which also may later pass to the donor’s spouse, can only be split if the interest created in the third-party is ascertainable, or the non-donor spouse’s interest in the gift is negligible to the extent that it can be ignored. [Private Letter Rulings 200616022; 200551009.] This limitation arises when a gift is made to a trust in which the non-donor spouse is a permissible beneficiary. Specifically, the IRS has ruled that when the value of  the non-donor spouse’s interest in the trust cannot be determined, i.e., valued, gift-splitting is not available. [Revenue Ruling 56-439.] Courts have disagreed on whether the non-donor spouse’s interest in a trust is ascertainable when the distributions from the trust are limited to an ascertainable (HEMS) standard.

Joint and Several Liability: The spouses are jointly and severally liable for all gifts that are reported on a split-gift Form 709. [IRC 2513(d); Regulation 25.2513-3.] However, the IRS has also found that a non-donor spouse will not be liable for any gift tax associated with a split-gift  when the donor spouse committed fraud. [Chief Counsel Advice  200205027.]

Conclusion: Gift-splitting makes sense for many spouses, especially when their intended donees are the same. Complying with the technicalities and electing to split-gifts can be a bit of a challenge but they are nothing that cannot be handled by most folks to prepare the Form 709. The key point is that once the split-gift election is made on a federal gift tax return filed by April 15, then that election cannot be revoked after that date.