Which of the following are important characteristics of the gift tax marital deduction

Which of the following are important characteristics of the gift tax marital deduction? It enables the donor to avoid gift tax liability by transferring the entire liability for gift taxes to the donee spouse. It allows the donor to avoid gift tax liability on up to one-half of the value of the gifted property that is received by the donee spouse. It allows the donor to avoid gift tax liability on the amount of the gift in excess of the annual exclusion amount. It allows the donor to avoid gift tax liability on a gift to a donee spouse. A) I and II B) II and IV C) I and III D) III and IV

The correct answer and explanation is:

The correct answer is D) III and IV.

Explanation:

The gift tax marital deduction is a provision in tax law that allows a donor to make gifts to their spouse without incurring any gift tax liability, subject to specific rules. The key characteristic is that gifts made to a spouse are generally excluded from gift tax liability under the marital deduction.

Here’s why III and IV are correct:

1. III: It allows the donor to avoid gift tax liability on the amount of the gift in excess of the annual exclusion amount: This is correct. The gift tax marital deduction allows a donor to avoid gift tax on gifts made to a spouse, and this exemption applies regardless of the value of the gift. This means that even if the gift exceeds the annual exclusion limit, the donor will not have to pay gift tax on the transfer to their spouse.
2. IV: It allows the donor to avoid gift tax liability on a gift to a donee spouse: This is also correct. The marital deduction applies to gifts made to a spouse, meaning that the donor does not have to pay gift taxes on the transfer of property to their spouse during their lifetime. This rule is in place to ensure that married couples are not penalized by gift taxes for transfers between them.

Now, let’s analyze why I and II are incorrect:

1. I: It enables the donor to avoid gift tax liability by transferring the entire liability for gift taxes to the donee spouse: This is incorrect. The marital deduction does not transfer the tax liability to the donee spouse. The purpose of the deduction is to eliminate gift tax liability entirely on gifts between spouses, not to shift the liability.
2. II: It allows the donor to avoid gift tax liability on up to one-half of the value of the gifted property that is received by the donee spouse: This is also incorrect. The marital deduction does not limit the amount that can be deducted to one-half of the gifted property. It covers the full value of the gift to the spouse, not just a portion.

In summary, the gift tax marital deduction is designed to allow spouses to make unlimited gifts to each other without incurring gift taxes. This avoids gift tax on gifts made to a spouse, including amounts above the annual exclusion limit, but does not transfer or limit tax liability between the donor and donee.