Gifting Strategies to Help You and Your Family
The holiday season is often a natural time to reflect on how you want to share your good fortune with the people you care about. While estate planning ensures that your assets are distributed according to your wishes after your passing, gifting during your lifetime can be especially meaningful. Whether you want to help a child purchase a first home, contribute to a grandchild’s education, or simply share the resources you have worked hard to build, giving now allows you to see the positive impact of your generosity.
Many families avoid conversations about money but lifetime giving creates an opportunity to share your values as well as your resources. By giving in the present, you can clearly communicate your intentions, offer guidance, and help your loved ones understand not just the gift itself, but the meaning and purpose behind it. At the same time, gifting strategies can offer you tax advantages. With proper planning, you can reduce the size of your taxable estate, take advantage of annual exclusions, and create opportunities to transfer assets in a tax-efficient way.
Here are some things to consider:
How can you give tax-free gifts?
- Annual Gift Tax Exclusion – In 2025, the IRS allows you to give up to $19,000 per person without the need to file a gift tax return. The gifts you can give include cash, stock, real estate, artworks, collectibles, or any other type of property. So long as the total you give to any one person remains under $19,000, these transfers are entirely gift tax-free. Otherwise, if you go above this amount, you must report it to the IRS on a U.S. Gift Tax Return (Form 709). You can make as many tax-free gifts (up to $19,000) to as many individuals as you want. Married couples can combine exclusions to gift $38,000 per person.
- Lifetime Gift and Estate Tax Exemption – If you want to make a gift that is more than $19,000, you can use your lifetime gift tax exclusion. When an individual gift is greater than the annual limit, the excess reduces your lifetime federal gift and estate tax exemption. You will only owe gift tax once that lifetime exemption has been fully used. For 2025, the exemption is $13.99 million per person (or $27.98 million for married couples filing jointly) and in 2026 it will increase to $15 million per person. Current estate law also allows a surviving spouse to add any unused portion of the deceased spouse’s exemption to their own through a provision known as portability. This means that a surviving spouse can have a lifetime exemption amount up to $27,980,000 in 2025.
What are the types of gifts you can give?
There are several ways to give, depending on your goals:
- Cash or Checks – This is an easy way to give someone a gift that they can use however they choose.
- Stocks – You can give stocks as a gift and the recipient will benefit from the possible gains in the stock’s value. This can be an especially thoughtful gift for someone who does not have any experience with investing. You can give someone a share in a company that they like while also giving them the opportunity to learn more about how the stock market works. You can transfer shares by using your brokerage account or buy shares through a specialized service. The recipient may owe capital gains taxes if they sell the asset later, but this can still be beneficial if they are in a lower tax bracket.
- Gifts to Minors: UGMA/UTMA Custodial Accounts – Uniform gift to minors accounts (UGMA) and uniform transfer to minors accounts (UTMA) are custodial accounts that give minor children the ability to save and invest. You can give stock to a minor through these accounts, and an adult manages it until the child reaches the age of majority, which depends on their state of residence. Once they reach majority age, they are in complete control of the account. If you are planning to give a minor a gift in this way, it can be a good idea to speak with the child’s parents first. They may prefer another option such as a 529 savings plan or a trust that allows them to maintain more control over the funds and how they are used.
- 529 Savings Plans – A 529 education savings plan is a tax-advantaged plan that allows you to save for future education costs. The funds can be used to pay for qualified expenses from kindergarten through graduate school and apprenticeship programs. 529 plans grow tax-deferred, and withdrawals are tax-free so long as they are used for qualified expenses. There is no limit to the number of plans you can set up, and you can name anyone as a beneficiary. For those who want to make a larger, one-time contribution, the IRS allows five-year gift tax averaging. This lets you contribute up to five times the annual gift tax exclusion at once ($95,000 for individuals or $190,000 for married couples in 2025) and treat it as if it were made evenly over five years for tax purposes. This is a way to reduce the size of your taxable estate while making a meaningful contribution to a child or grandchild’s education.
- Trusts – Trusts are especially helpful when gifting to minors or adult children, since you can outline specific instructions for when and how funds may be used, even after your lifetime. They can be a useful tool for managing and transferring wealth. An irrevocable trust allows you to remove assets from your estate, which can help with estate tax planning, while still maintaining control over how those assets are managed and distributed. When structured properly, an irrevocable trust can also offer protection from creditors, lawsuits, and divorce settlements, helping ensure that your assets ultimately go where you intend.
The Importance of Communication
Giving while you are alive allows you to talk openly with your loved ones about your wishes and your reasons for the gift. Whether you want to teach younger family members about developing responsible financial habits or introduce them to the basics of investing, speaking openly with your intended recipient can be helpful in many ways. Not only can you communicate what is important to you, but you may learn more about their current financial situation and discover that an alternate gift than what you may have had in mind could be more beneficial.
Legal Considerations When Gifting
When you are giving larger gifts, it is important to understand the legal requirements that are involved. Lenders or financial institutions may require documentation such as a gift letter or proof of funds to confirm that the money is not a loan. Significant transfers can also affect eligibility for certain government benefits like Medicaid so it is vital that you carefully consider any gifts and how they will fit into your own long-term plans.
If you are planning to give to your loved ones this holiday season, it can be a good idea to speak with your financial advisor first. They can help you to review your options and explore how gifting strategies can fit into your financial plan. If you would like to learn more, please contact us.
