Gifting is one of those topics that comes up often with clients. The decision to give is one thing, but the way that you should give to family can be more complicated. There are three ways to gift on a tax-exempt basis.
1. Annual exclusion gifts
For 2025, you can give $19,000 (or $38,000 if you are married and split the gift) to anyone you want. Yes, anyone. These gifts are not taxable to you or the recipient. You can make these gifts every year, and this number is indexed for inflation each year.
2. Combine gifts with your spouse
Now with the passage of the Big Beautiful Tax Bill, your lifetime limit for gifts, not including the $19,000/$38,000 each year, is currently $15 million per donor. If you combine this with your spouse, you can give a combined $30 million either during your lifetime or upon your death. If your spouse passes, then their unused limit can be combined with yours, but you must file an estate tax return (Form 706) in order to do it. More specifically, Page 4 of the 706, Section C titled “DSUE Amount Portable to the Surviving Spouse.” DSUE stands for Deceased Spouse’s Unused Exemption. Gifts that skip a generation, known as Generation Skipping Gifts (GSTs), are not portable, so if they are not used before your death, they are lost.
3. Unlimited gifts for payments of medical expenses or tuition
Like annual exclusion gifts, these gifts can be made to anyone. Also, like annual exclusion gifts, they do not reduce your total lifetime gift limits. They are always tax-free, regardless of whether or not you have already used up all of your gift tax
exclusion. Best of all, there are no limits on the amount you can give for these situations.
Another issue is gifting during your lifetime or via an inheritance. If you have already used up your lifetime exclusion and you want to continue to make gifts above the current
$19,000/$38,000, and you are subject to estate taxes, then the math suggests you are better off making taxable gifts during your lifetime. For example, a $1 million gift to an heir would incur a 40% tax to you. Therefore, it would cost $1.4 million to make a $1 million gift. Via inheritance, the same $1.4 million gift at a tax of 40% would leave your heir with only $840,000, since
$560,000 goes to the IRS instead of $400,000 via a lifetime gift. It’s important to note that if you were to pass within three years of making that gift, then the gift tax paid would be added back to the estate, and the benefit of the lifetime gift would be nullified.
Lastly, gifts to charities are best done via a Qualified Charitable Distribution (QCD) if possible. You just need to be age 70 ½ or older in order to do it. This is done via a direct transfer from your IRA to the charity only.
Why might you want to make gifts? Well, for starters, it reduces your estate. The purposes of the gifts could include business interests, life insurance, paying the tax on a Roth IRA conversion, charitable trusts and paying off mortgages. Many people would rather see the benefits of a gift made today while they are still alive than make it upon their death when they can’t see all the good it did for their heirs at a time when they likely need it the most.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment advisory services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS. Reich Asset Management, LLC is not affiliated with Kestra IS or Kestra AS. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. This is for general information only and is not intended to provide specific investment advice or recommendations for any individual. It is suggested that you consult your financial professional, attorney, or tax advisor with regard to your individual situation. To view form CRS visit https://bit.ly/KF-Disclosures.
Eric is President and founder of Reich Asset Management, LLC. He relies on his 25 years of experience to help clients have an enjoyable retirement. He is a Certified Financial Planner™ and Certified Investment Management AnalystSM (CIMA®) and has earned his Chartered Life Underwriter® (CLU®) and Chartered Financial Consultant® (ChFC®) designations.
