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Simple English definitions for legal terms
gift-splitting
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A quick definition of gift-splitting:
Gift-splitting is when a married couple combines their gift tax exclusions to make a gift to a third person. This means that both spouses treat the gift as if they each gave half of it. For example, if they make a gift of $20,000, each spouse can use their annual exclusion of $10,000. This is a way to reduce the amount of gift tax owed on a large gift.A more thorough explanation:
Definition: Gift-splitting is a tax strategy where a married couple combines their annual gift-tax exclusions to make a gift to a third person. This allows them to give a larger gift without having to pay gift tax.
Example: John and Jane are married and want to give their son a gift of $30,000. Instead of each giving $15,000 and having to pay gift tax on the excess, they decide to use gift-splitting. They combine their annual exclusions of $15,000 each, making a total of $30,000, and give it to their son without having to pay gift tax.
This example illustrates how gift-splitting allows a married couple to give a larger gift without having to pay gift tax. By combining their annual exclusions, they can give up to double the amount without incurring any tax liability.