Retirement & Financial Planning Report

In 2012, the annual gift tax exclusion is $13,000 per recipient, just as it was in 2011. That is, you can give up to $13,000 worth of assets to each recipient, with no gift tax consequences. There is no limit to the number of recipients.

If you are married, your spouse also can give up to $13,000 per recipient. For example, John Jones can give $13,000 to his daughter Kim and John’s wife Meg also can give $13,000 to Kim, without owing any tax.

However, such gifts may not be practical for all married couples. Suppose that John and Meg have both been married before. John would like to give $26,000 to Kim, his daughter from his first marriage, but Meg does not want to part with her money.

In such situations, married couples can use a tactic known as gift splitting. For example, John could give $26,000 to Kim in 2012. Then John would file a gift tax return and Meg could add her signature to the return, consenting to the split gift. That is, Meg would agree to John’s use of her annual gift tax exclusion, even though Meg has not given away any assets.

A married couple who split gifts in this manner must split all gifts to third parties during that calendar year. The same rule applies if couples split larger gifts, thus using both spouses’ annual exclusion as well as all or part of their lifetime gift tax exemptions, which is $5.12 million per taxpayer in 2012.