IRC 2513 Gift-Splitting Rules: Identifying Gifts Requiring Non-Pro Rata Allocations

Description

IRS Form 709 Gift (And Generation Skipping Tax) Return is one of the more complex of all commonly encountered tax filings. For many taxpayers and even some advisers, simply determining whether a transfer qualifies as a reportable gift is a challenge. Even tax professionals with experience in preparing the form can be stumped by the more complicated aspects of reporting these transfers.

One of the most difficult tests is navigating the gift-splitting rules of Section 2513. The rules allow a married couple to treat the total value of a gift as split between them, increasing their total gift tax exemption. In instances of gifts to individuals, the gift-splitting rules are straightforward in operation; however, when gifts are made to certain trust vehicles, the application does not always allow an equal split.

If a spouse makes a gift to a non-zeroed-out GRAT in which the spouse is a beneficiary of the remainder interest, the gift-splitting election will only be effective to the extent that the non-spouse beneficiaries’ interest is ascertainable and severable from the interest given to the spouse at the time of the gift.

Gifts to some trusts, such as irrevocable life insurance trusts, that feature Crummey powers also present challenges in navigating the gift-splitting rules. Tax advisers completing fiduciary returns must understand the specifics of the gift-splitting rules to avoid costly tax consequences.

Listen as our experienced panel provides a thorough and practical guide to the complexities of gift-splitting rule elections, calculations, and tax reporting on Form 709.