529 Gift Splitting and Form 709

[ThinkingRunner]

Here's the situation. My wife and I had twin babies late last year. As soon as the dust settled, we opened two 529 accounts, one for each child. I am listed as the custodian/owner of both accounts. My wife is listed as successor owner.

We then contributed $20,000 to each 529 account (total $40,000 < $13,000 * 2 parents * 2 kids = $52,000). The contributions were made via electronic ACH transfer from a joint checking account in both our names. Do we need to file Form 709 to provide consent for gift splitting in the above scenario? Or does the fact that we contributed from a joint checking account constitute implicit consent, as if we had signed separate checks?

This is somewhat confusing because (1) I am sole custodian of both 529s (2) Contributions were made electronically (we didn't "sign separate checks"), and (3) Contributions were made from a joint checking account. The previous threads on this topic were somewhat unclear.

Thanks for any advice you may have on this situation.

[sscritic]

This isn't gift splitting. Gift splitting is when the wife gives $20k of her own money to her sister, and her husband agrees to count $10k of the $20k gift as coming from him even when it didn't. Imagine a two step: his wife gives him $10k, then he gives $10k to his sister-in-law. Read the instructions to form 709. That's the way I read the instructions. Since your account was joint, all the money didn't come from you.

[ThinkingRunner]

Thanks for your response, sscritic.

I looked at the instructions for Form 709 ( http://www.irs.gov/pub/irs-pdf/i709.pdf ), and saw this under "Who Must File" on Page 1.

IRS said:

"If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return.

Is a joint checking account considered community property for the purpose of gift tax returns? We live in Massachusetts, if that makes a difference.

[kaneohe]

I think community property is a "technical" term not applicable in non-community states like yours.
However, In the instructions right below your quote is a sentence: Likewise w/ joint accounts.........which suggests the same assumption.....that the gift is considered 50:50 if from a jt account. I think they should have made the example more complete by also having besides the 100K gift, one of 20K as in your case.

This article suggests that a jt account is considered to be owned equally by both owners (similar to community property)
http://budgeting.thenest.com/legal-implications-owning-joint-bank-account-21542.html
so it would be strange to me if they treated jt accts differently than community property.

[MN Finance]

Thanks for your response, sscritic.

I looked at the instructions for Form 709 ( http://www.irs.gov/pub/irs-pdf/i709.pdf ), and saw this under "Who Must File" on Page 1.

IRS said:

"If a gift is of community property, it is considered made one-half by each spouse. For example, a gift of $100,000 of community property is considered a gift of $50,000 made by each spouse, and each spouse must file a gift tax return.

Is a joint checking account considered community property for the purpose of gift tax returns? We live in Massachusetts, if that makes a difference.

You are ASSUMED to have split gifts when coming from a married couples joint account - for "better" or "worse". You don't need to elect the fact that you split gifts. In your example of $20k it's for "better" in that you don't need to worry about tracking that you each contributed $10k. In the example you quoted from the IRS, it's for "worse" (though not really worse except that both then need to file a gift tax form). And they probably used that example because it's over the annual gift limits making it a taxable gift. Yours is not a taxable gift. You only need to file a gift tax form for if/when you give a taxable gift (and every year thereafter).

[ThinkingRunner]

You are ASSUMED to have split gifts when coming from a married couples joint account - for "better" or "worse". You don't need to elect the fact that you split gifts. In your example of $20k it's for "better" in that you don't need to worry about tracking that you each contributed $10k. In the example you quoted from the IRS, it's for "worse" (though not really worse except that both then need to file a gift tax form). And they probably used that example because it's over the annual gift limits making it a taxable gift. Yours is not a taxable gift. You only need to file a gift tax form for if/when you give a taxable gift (and every year thereafter).

Thanks, kaneohe & MN Finance. I see now that the only reason the couple in the IRS example needed to file forms 709 is because they exceeded the annual limits even after the gift-splitting assumption was applied to the community property asset (e.g. joint checking account). It shouldn't apply in our case since we are below those limits after applying the splitting assumption.

I agree that the IRS should have an example that depicts a scenario where implicit splitting results in *not* having to file a gift tax return.

[sscritic]

I still read differently.

If you and your spouse agree, all gifts (including gifts of property held with your spouse as joint tenants or tenants by the entirety) either of you make to third parties during the calendar year will be considered as made one-half by each of you

I make a gift of $15k to party A from my separate assets.
My wife makes a gift of $10k to party A from her separate assets.
My wife and I make a gift of $5k to party A from our joint assets.

How does the quoted sentence apply? When my wife and I agree to split gifts, we have to consider all, all being a key word, as being split, and, by the way, all includes gifts from joint property. Thus, if we agree to split the gifts, the gifts so split are not just the $25k from the two separate properties, but the $30k, the all of all gifts.

Now suppose we don't agree to split gifts. My gifts were $15k plus $2.5k or $17.5k and my wife's gifts were $10k plus $2.5k or $12.5k. The $5k was divided in two parts, not because we agreed to split gifts, in fact, we specifically decided we would not split gifts, but because it was jointly owned. I file a 709 because my gifts were over $13k (last year) and my wife does not as hers were not. No splitting involved.

[ThinkingRunner]

I still read differently.

If you and your spouse agree, all gifts (including gifts of property held with your spouse as joint tenants or tenants by the entirety) either of you make to third parties during the calendar year will be considered as made one-half by each of you

I make a gift of $15k to party A from my separate assets.
My wife makes a gift of $10k to party A from her separate assets.
My wife and I make a gift of $5k to party A from our joint assets.

How does the quoted sentence apply? When my wife and I agree to split gifts, we have to consider all, all being a key word, as being split, and, by the way, all includes gifts from joint property. Thus, if we agree to split the gifts, the gifts so split are not just the $25k from the two separate properties, but the $30k, the all of all gifts.

Now suppose we don't agree to split gifts. My gifts were $15k plus $2.5k or $17.5k and my wife's gifts were $10k plus $2.5k or $12.5k. The $5k was divided in two parts, not because we agreed to split gifts, in fact, we specifically decided we would not split gifts, but because it was jointly owned. I file a 709 because my gifts were over $13k (last year) and my wife does not as hers were not. No splitting involved.

Thanks for the example.

My original confusion was simply this: Are gifts from a joint account automatically "divided in two parts" (using your phraseology), or do we need to explicitly elect to split gifts (IRS terminology) by filing two 709s? Based on everyone's comments, it appears that the former is true and we do not have to file the gift tax return because we're below the $13k threshold per donor/donee pair with the automatic division applied.