Kenny is thinking of making a substantial gift of stock to his fiancée, Maria. The wedding is scheduled for October 1 of the current year. Kenny already has exhausted his unified credit. He also is considering giving $26,000 cash this year to each of his three children by a previous marriage. What tax issues should Kenny consider with respect to the gifts he plans to make to Maria and his three

Question

children?

What will be an ideal response?

Answer 1

• Will the gift to Maria be eligible for the marital deduction? If not, should he consider postponing the gift until after the wedding?
• Will gift splitting be available on the planned gifts to the three children?
• If gift splitting is available, will the gift-splitting election produce favorable tax results?

The gift to Maria will not be eligible for the marital deduction unless he postpones the gift until after their marriage. Because the anticipated gift to Maria is substantial, and his only tax break if he makes the gift before marriage is the $15,000 annual exclusion, he should consider postponing the gift and having it be nontaxable under the unlimited marital deduction rules.

Gift splitting will be available on the planned gifts to the children only if he makes them after marrying Maria.

Gift splitting would produce favorable tax results because with gift splitting the $26,000 planned gift to each child would be fully shielded by two, $15,000 per donee annual exclusions. Each spouse is deemed to make a gift.