Gifting is one of the most powerful—and often overlooked—tools in estate planning. Done strategically, it can reduce the size of your taxable estate, minimize future tax liability, and allow you to help loved ones during your lifetime. A recent Investopedia article, “Tax-Smart Giving: How to Gift $1M Without the IRS Calling,” outlines how to use federal rules to gift wisely and avoid unwanted tax surprises.
Let’s break down how it works:
A gift is any transfer of property, money, or assets to another person without receiving something of equal value in return. This can include:
Even seemingly small acts of generosity can count as gifts under IRS rules, so it’s important to track them—and ensure they align with your larger estate plan.
In most cases, the person giving the gift (the donor) is responsible for any federal gift taxes—not the recipient.
Thankfully, most gifts are tax-free thanks to the annual exclusion. In 2025:
There’s no limit to the number of people you can gift to each year. These tax-free gifts don’t reduce your lifetime exemption—unless you go over the annual limit.
In addition to the annual exclusion, the IRS allows individuals to gift up to $13.99 million over their lifetime without paying federal gift or estate tax. Gifts above the $19,000/year threshold simply reduce your lifetime exemption. But if your estate is under $13.99 million (or under $27.98 million for married couples using portability), you likely won’t owe any federal taxes.
Just make sure to file IRS Form 709 for any gift that exceeds the annual exclusion—even if no tax is owed. This form helps the IRS track your lifetime exclusion usage and keeps your gifting strategy clean and compliant.
Timing matters. Some couples gift $19,000 to the same individual on December 31, then do it again on January 1—effectively giving $76,000 between them over two calendar years.
If you're planning major gifts, it may be wise to act before December 31, 2025, especially as the federal exemption is expected to drop in 2026 unless Congress extends the current rules.
Some payments aren’t considered gifts at all under IRS rules:
You must make the payment directly to the institution—not to the family member or patient—for it to qualify.
If you give above the exemption limit and don’t report it properly, you could owe up to 40% in gift taxes. That’s why consulting an estate planning attorney and CPA is crucial when developing a gifting strategy.
At The Werner Law Firm, we believe giving should bring peace of mind—not tax headaches. Our estate planning attorneys can help you create a gifting plan that minimizes taxes, supports the people and causes you care about, and fits seamlessly into your overall estate strategy.
If you have any questions, schedule a free appointment with us through our online appointment page.
You can also read reviews from some of the hundreds of clients we have helped over the years.
Reference: Investopedia (June 1, 2025) “Tax-Smart Giving: How to Gift $1M Without the IRS Calling”
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