Can Surviving Spouse Use Gift Exclusion of Deceased Spouse?
I have bought your book “Get Your Ducks in a Row” and have enjoyed the reading. My question: in the year of passing can a decedent and their spouse gift up to the annual exclusion limit ($16k x 2) of $32k even after the decedent has passed but gifted the asset (cash) in the same tax year?
It depends when the gift was made. If it was made before death, then you can use the deceased spouse’s annual exclusion. But if the gift was made after death, then it’s too late.
I’ll expand on this response for other readers, though this issue is only really relevant to people with very large estates. Currently, individuals can give away up to $12 million either during life or at death without incurring any federal estate or gift tax. Married couples can give away twice this amount. The threshold is adjusted each year for inflation, but is slated to be cut in half in 2026.
If you make a gift during life, you use up some of this tax credit. For instance, if you give away $1 million during your life, you must file a gift tax return and you will only be able to give away $11 million (at the current threshold) at death. However, there are some exceptions to this rule. The one you refer to is that gifts of up to $16,000 a year per giver and recipient do not have to be reported and don’t count against the $12 million threshold. So, for instance, parents with 10 children, grandchildren and in-laws, can give them each $32,000 a year for a total of $320,000 a year without having to report it and without it counting against the estate tax threshold.
However, now getting to your question, to qualify for the exclusion the gifts must be made during life. Otherwise, the funds will be counted in the decedent’s estate and if the total estate exceeds $12 million, potentially subject to estate tax. I say potentially because in your question you state that there’s a surviving spouse. Since there’s no estate tax for property passing to a surviving spouse no matter how much, it’s very rare that any estate tax is due when one member of a married couple passes away.
I’m glad you liked my book.