Here’s a quick estate planning tip: one of the easiest ways to reduce the size of your taxable estate is to take advantage of your gift tax exclusion. For 2025, you can transfer up to $19,000 per recipient gift-tax-free. And you can double the exclusion to $38,000 per beneficiary if you split the gifts with your spouse. However, it’s critical to understand the rules of gift-splitting to avoid unintended — and potentially costly — mistakes. Pitfalls to avoid include:
- Failing to make the election. To elect to split gifts, the donor must file a gift tax return, and the nondonor must consent by checking a box on the return and signing it or, if a gift exceeds $30,000, filing his or her gift tax return. Once you make the election, you must split all gifts to third parties for the year.
- Splitting gifts with a noncitizen. To be eligible for gift-splitting, one spouse must be a U.S. citizen.
- Divorcing and remarrying. You must be married at the time of the gift to be eligible for gift-splitting. You’re ineligible if you divorce and either spouse remarries during the calendar year in which the gift was made.
- Gifting a future interest. Gift-splitting can be used only for present interests. So, a gift in trust qualifies only if the beneficiary receives a present interest — for example, by providing the beneficiary with so-called Crummey withdrawal rights.
- Benefiting your spouse. Gift-splitting is ineffective if you give the gift to your spouse rather than a third party. The same is true if you give your spouse a general power of appointment over the gifted property or if your spouse is a potential beneficiary of the gift. For example, suppose you make a gift to a trust of which your spouse is a beneficiary. In that case, gift-splitting is prohibited unless the chances your spouse will benefit are incredibly remote.
Also, when splitting gifts, know that if you die within three years of splitting a gift, some of the tax benefits may be lost.
Gift-splitting can be a powerful estate planning tool, but only if done correctly. By understanding these key rules and avoiding common mistakes, you can maximize tax benefits and ensure compliance with IRS regulations. If you’re unsure about your situation, consulting a THK estate planning professional can help you navigate the complexities.
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