The purpose of estate tax planning is to maximize the assets you pass on to future generations by minimizing gift and estate taxes. Estate-tax strategies revolve around the use of irrevocable trusts. This article discusses the most common types of irrevocable trusts that are used to minimize gift and estate […]
Gifting money or property to loved ones is a common way of showing affection and support. However, it is important to understand the tax implications of gifting, especially if you are planning to transfer substantial amounts. The federal government imposes a flat 40% tax on gifts to other individuals, with certain exceptions: (1) gifts to spouses; (2) certain gifts related to a person’s health care or education; (3) annual exclusion gifts (gifts of up to $19,000 per recipient); and (4) gifts that fall within an individual’s lifetime gift tax exemption amount.
Lawmakers didn’t want everyone in America to pay a 40% tax on gifts to their family members and friends. So, Congress decided to exempt a certain amount of gifts made by one person from being subject to gift tax. A person’s gifts above the exemption amount are subject to gift tax.
In 2025, the lifetime gift tax exemption is $13.99 million per individual. This means that each person can give away this amount during their lifetime without having to pay any gift tax. It is important to note that this exemption is cumulative, meaning that if you have already used some of your lifetime gift tax exemption, the remaining amount will be reduced accordingly.
The estate tax, like the gift tax, is levied at a flat 40% rate. But the two taxes have more in common than that; in fact, they are best thought of as a single tax. The gift tax applies to transfers during the donor’s lifetime while the estate tax applies to transfers upon death. Likewise, they share a single lifetime exemption amount. The amount of gift tax exemption you use during your life counts against your estate tax exemption amount. So, if you use up all of your gift tax exemption during your lifetime, you won’t have any estate tax exemption upon your death.
The lifetime gift tax exemption is a valuable tax benefit for individuals looking to transfer wealth to their loved ones without having to pay gift tax. As a general rule, making lifetime gifts is tax efficient. Transferring an asset out of your personal name not only transfers the asset out of your estate for estate tax purposes, but also the future appreciation and income that it would otherwise generate. For example, if you gift a $1 million stock portfolio, and that stock portfolio appreciates to $3 million by the time of your death, you will have moved $3 million (not just $1 million) out of your estate.
With a lifetime gift tax exemption amount of $13.99 million per person in 2025, individuals have significant flexibility to make tax-free gifts during their lifetimes.
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From picking the best strategy to taking care of all the setup and ongoing overhead, we make things simple. The results are real: We have helped create more than $3 billion in additional wealth for our customers. If you would like to learn more, please feel free to explore our Learning Center. You can also see your potential tax savings with our online calculators or schedule a time to chat with us!
