Tax implications of adding a LPR spouse as a joint account holder

Question

If a US permanent resident adds a US permanent resident spouse as a joint account-holder on a brokerage (or other) account, what are the gift tax implications, if any?

I believe that in the case of US citizen spouses, there is an unlimited marital deduction for transfers between spouses, but my understanding is that this does not apply for permanent resident spouses. I found this chart, which appears to suggest that 147,000 USD may be transferred annually, and that there's an additional 5,490,000 USD that may be transferred tax-free over an individual's lifetime.

Based on that, my understanding would be that adding a permanent resident joint account-holder would be evaluated as follows:

1. half the account value is treated as a gift
2. the first 147,000 USD of that half is treated as a tax-free gift
3. any remaining value of that half is applied against the 5,490,000 USD lifetime exclusion amount
4. any remaining value of that half over the 147,000 + 5,490,000 is treated as a taxable gift.

Is this correct?

As a followup question, for states with that allow for Community Property joint ownership, how does that affect gift/taxation status versus Joint Tenancy?

Answer 1

Your understanding is not completely correct. Property acquired during the course of the marriage is community property regardless of who is the owner of the account but property that belonged to you before the marriage is your personal property. So, the question is whether you established the brokerage account in your name only using property that you owned before the marriage began or the money came from a joint account that you and your spouse established after being married. In the latter case, there is no gift since your spouse owns half the account anyway even if her name does not appear as the owner. Messier would be the case if the money came from your own checking account established prior to the wedding but your salary continued to be deposited into the account even after the marriage began and so individually owned property has been commingled with community property.

Regardless of all this, please understand that whatever gift actually occurred (over and above the $147K annual exemption) is subject to gift tax but can be counted against the combined lifetime gift and estate tax exclusion of $5.4M so that no gift tax need actually be paid. This "counting against exclusion" is not automatic: you need to file Form 709 with the IRS to claim the exclusion. Form 709 is not filed along with your income tax return but is sent to a specific IRS office regardless of where you live. I believe that the April 15 deadline is applicable to this form too (but it might be April 30; check the instructions for completing Form 709 which will also tell you the address where the Form is to be sent).

I strongly recommend getting advice from a tax practitioner or lawyer versed in tax law instead of relying on the Internet for suggestions as to what you need to do. Start now rather than waiting till April when these folks are swamped with Form 1040 stuff.