Final answer:
Lucy gave each of her five children $20,000. Without gift-splitting, her total taxable gifts would be the amount over the annual exclusion times five. With gift-splitting, Lucy and her husband Desi would each be considered to have given half of the gift, keeping it within the annual exclusion limit and resulting in no taxable gifts.
Step-by-step explanation:
The question involves understanding gift tax regulations in the United States. Specifically, it asks about the potential consequences of a person named Lucy giving her children a total of $100,000 in the absence or presence of gift-splitting. According to current gift tax laws, each individual can give a certain amount to any number of people each year without incurring a gift tax.
In 2021, for instance, this annual exclusion amount is $15,000 per recipient. Without gift-splitting, Lucy would be considered as the sole donor and would have gifted $20,000 to each child, totalling $100,000. Since this is above the annual exclusion, Lucy would need to file a gift tax return and the amount above the annual exclusion times the number of recipients would be treated as a taxable gift. Conversely, if Lucy elects gift-splitting, the gifts would be considered as made one-half by her and one-half by Desi, staying within the annual exclusion amounts (assuming Desi has not made other gifts).
Therefore, none of the gifted amounts would need to be reported and no taxable gift would be created. If no annual exclusion applies, under the gift-splitting election, Lucy has made $0 in taxable gifts because the total gift amount would be split equally between her and her husband, each giving $10,000 per child which is within the annual exclusion limits. Without gift-splitting, Lucy's total taxable gifts would be the amount over the annual exclusion times five, which would be a significant amount if the exclusion is at $15,000 per person as it was for many recent years.