While estate planning is about deciding who will inherit your assets, it is also a time to plan and strategize the best way to minimize tax exposure.
One of the most significant ways people choose to do this is through gift-giving. Through your estate planning processes, you can choose to give significant assets as a gift, but while this can be beneficial financially, it does come with a learning curve.
Understanding the Federal Estate Tax
Before you start gift-giving, you must understand the federal estate tax. The federal estate tax is imposed on the transfer of assets at death. However, it only applies to estates that exceed a certain value.
As of 2025, the federal estate tax exception is $13.9 million per individual, or double that for married couples. Anything above that number can be taxed up to 40%. If your estate goes beyond that number, it could be wise to think of proactive gifting to help transfer wealth during your lifetime.
This tax exception can help pass down assets, such as a shared family business, real estate interests, and investment accounts.
Annual Gift Tax Exclusion
Every year, the IRS allows individuals to give up to $19,000 (as of 2025) to as many individuals as they wish. With this number being followed, it will not trigger any gift tax or impact their lifetime exception.
Additionally, married couples can combine their exclusions and gift $36,000 per individual. By gifting an amount each year, you can help lower your overall wealth, effectively lowering your tax burden later on.
Strategic Gifting Through Trusts
Giving gifts comes with some strategy behind it. One of the most significant strategies that many utilize is taking advantage of irrevocable trusts to have control, creditor protections, and further estate tax benefits.
Some might choose to use a Crummey trust. This type of trust allows the grantor to make gifts to beneficiaries without obtaining gift tax and potentially reducing their taxable estate. Beneficiaries can then withdraw a portion of the trust’s assets for a limited time (30-60 days).
Individuals might also utilize a grantor-retained annuity trust (GRAT). This type of irrevocable trust allows the grantor to transfer assets to beneficiaries while potentially reducing estate and gift taxes.
There are many strategies that one can use to give gifts in order to reduce their tax burden. It all depends on how you wish to pass down your assets.
Common Gift-Giving Mistakes to Avoid
While gift-giving can be an extremely beneficial tool when estate planning, there are some common mistakes that many make, causing the benefits to turn into hassles down the road.
First, you want to avoid documenting the gifts improperly. You want to take the time to ensure each gift is well documented, represented, and distributed to prevent any grey area. Then, you do not want to give away highly appreciated assets without considering capital gains. Overall value is going to fluctuate, and you want to be proactive about what the future might hold.
Lastly, you want to avoid not coordinating gifts with your overall estate plan. Your estate plan should be a well-oiled machine, ensuring that every asset has a place and your wishes all coexist with each other. You don’t want to keep your gift-giving ventures separate from the rest of your estate plan, as it could alter your estate plan unknowingly.
Gift-giving can help reduce your estate tax burden. However, it is only possible by strategizing and utilizing the right tools. You can do this with the help of an estate planning attorney. If you have further questions or wish to strengthen your estate plan, contact the team at Hartmann Law.