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Old 08-05-2016, 07:58 AM
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gift tax question

Hi all, just a quick question. On gift tax return form 709, the instruction says "you do not need to enter any of your gifts to your spouse on schedule A" unless it is a terminable interest. I got confused that if gifts to spouse aren't even required to report, then why should there be a marital deduction? (seems like marital deduction isn't applicable to terminable interest anyway, and lets assume spouse is us citizen)

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Old 08-06-2016, 05:47 AM
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Hi all, just a quick question. On gift tax return form 709, the instruction says "you do not need to enter any of your gifts to your spouse on schedule A" unless it is a terminable interest. I got confused that if gifts to spouse aren't even required to report, then why should there be a marital deduction?===I guess for some sort of lawful conceptual or tax rule satisfaction. The IRS allows you to make an unlimited number of tax-free transfers to your spouse. The idea is that spouses shouldn?t be forced to pay gift tax on gifts they make to each other. In most cases, you don?t have to file a gift tax return of 709 and there is no income tax liability. However, the IRS does have a few limitations you might want to keep in mind regarding the marital gift tax deduction. You must relinquish all rights and ownership of the asset to take advantage of the marital deduction. If you own the property jointly or if the property is held solely in your name, you must retitle the asset so only your spouse is listed on the title. Your spouse must accept the gift and take physical possession of the property. Your spouse must have absolute ownership and control over the property; every person has a unified tax credit that can offset gift tax and estate tax. For 2016, that amount is $5.45M I guess . If you are a surviving spouse, you can take advantage of the Deceased Spouse Unused Exclusion Amount to let you add the unused amount of your deceased spouse?s unified tax credit to your unified tax credit. For example, both individuals have their own lifetime exemption. In other words, a married couple can leave a total of $10.9 M that will be exempt from federal estate / gift taxes.

(seems like marital deduction isn't applicable to terminable interest anyway, and lets assume spouse is us citizen) ===>Correct;unlike QTIP, which is property in a decedent's estate that, even though subject to certain restrictions, can still qualify for the estate/gift tax marital deduction. So, property left /given to the spouse cannot be a "terminable interest" if it is to qualify for the marital deduction which is an interest in property that can expire due to the passage of time, or that can terminate due to the occurrence of some future event, or the failure of some event to occur.



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