Given that the lifetime gas tax exemption for 2020 has been increased for the next year to $11.58 million, a much smaller portion of people is now subject to federal gift taxes. Many people are also wondering whether it is still necessary to file gift tax returns. 

While it is not necessary to file these forms if your assets are below this threshold, there are situations in which you might want to file a Form 709, which is also known as a “United States Gift Tax Return.” This article reviews some critical details that you understand about the role of Form 709.

What Does Not Require a Form 709

While many asset transfers constitute gifts, there are some notable exceptions. Some asset transfers that need not be reported on Form 709 include:

  • Direct payments for qualifying medical or educational expenses.
  • Deductible charitable gifts.
  • Gifts of present interests within the annual exclusion amount.
  • Gifts to a spouse who is a U.S. citizen either directly or through a qualifying trust
  • Gifts to a noncitizen spouse within an annual exclusion amount of $157,000

Transfers in these categories are not subject to a gift tax return. All other gifts, however, must be reported through Form 709. 

Common Complications When Gifts

If you plan on gifting assets, there are some common obstacles that you should anticipate, which include:

  • The $15,000 annual exclusion on gifts only applies to present interests. This means that the gift of future interests is not covered by this exemption. As a result, you are required to report these transfers through Form 709 even if you transfer less than $15,000 in future interest.
  • Gifts to spouses who are U.S. citizens are exempt from the Form 709 reporting requirement. If you transfer assets to a trust for your spouse’s benefit, however, the trust must meet certain requirements addressing the spouse’s control of the assets or this gift must be reported with Form 709.
  • Spouses may choose to split a gift for a child so each parent is considered to have made half of the gift. Transferring assets in such a way allows married couples to combine the annual $15,000 exclusion amount and gift up to $30,000 to each recipient. If you plan on passing assets in such a way, you must complete Form 709. After deciding to transfer assets in such a way, you and your spouse must split all other assets to other parties for the rest of the year.
  • If you plan on contributing to a 529 college savings plan, you can decide to culminate five years of annual exclusions into the first year. This means that in the first year, a person can contribute $75,000 to a 529 plan, and the gift will be viewed as if it was made over five years.

Speak with a Knowledgeable Estate Planning Lawyer

Gifting is an ideal way to reduce the size of your estate as well as to help care for your loved ones. If you need the assistance of a knowledgeable estate planning attorney, do not hesitate to contact attorney Jim A Lyon today to schedule a free case evaluation.