Gifting is a common method of providing assets for a loved one. Gifting assets while you are alive, also known as lifetime giving, generally removes those assets from your estate for estate tax purposes, which may lower or eliminate any estate tax owed upon your death. However, gifting is not without consequences and requires careful consideration.
Federal Gifting Thresholds in 2025
For federal purposes in 2025, a person can give $19,000 to any individual without having to pay a gift tax or file a gift tax return. This is known as the annual exclusion amount. By combining annual exclusions, married couples can give a total of $38,000 per year to any one person.
Making a gift over the annual exclusion amount usually does not require you to pay a gift tax, but it does require you to file a gift tax return (IRS Form 709). In addition to the annual exclusion, every person has a federal lifetime gift and estate tax exemption, which is $13.99 million for the 2025 tax year (or $27.98 million for married couples).
For gifts above the annual exclusion amount, part of the donor’s lifetime exemption is used and the gift tax return states the used lifetime exemption amount. A gift tax may be owed if the exemption is fully used through gifting. Any amount used also reduces your available exemption for the federal estate tax.
Special rules exist depending on how a gift is transferred. For example, you could potentially use up to five years of your annual exclusion at once to contribute to your child’s 529 college savings plan. If done correctly in 2025, you and your spouse could contribute a total of $190,000 to a college savings plan in one year without using any of your lifetime exemption amounts.
OBBBA and the Lifetime Gift Tax Exemption
The One Big Bill Beautiful Act (OBBBA) brings a significant update to estate and gift tax planning. Set to take effect January 1, 2026, OBBBA permanently raises the federal estate, gift, and generation-skipping transfer (GST) tax exemption to $15 million per individual (equivalent to $30 million for married couples), and mandates that these amounts be indexed for inflation in future years. This change eliminates the previously scheduled sunset of the 2017 Tax Cuts and Jobs Act (TCJA) provisions, which would have drastically reduced the exemption after 2025. The permanent increase not only preserves the current high thresholds but also provides long-term stability and reduces the urgency for “use it or lose it” gifting strategies.
State Gift Taxes
Most states do not impose a state-level gift tax, creating opportunities to reduce or eliminate state estate tax upon death through lifetime giving. As of 2025, only Connecticut has a gift tax, and it is unified with its estate tax. However, depending on your state’s laws, gifts made shortly before your death may be included back into your estate for state tax purposes. Additionally, while gifting may reduce an estate tax obligation, it is not always the most tax-efficient method of transferring assets.
What Can Be Gifted
It is important to consider not just how much you are gifting, but also what you’re gifting. The most common gift is cash, but other assets can also be gifted, including:
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- Stocks
- Personal property
- Real estate
- Business interests
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Each asset type presents distinct advantages and drawbacks depending on your individual circumstances.
Drawbacks to Gifting
Although gifting can reduce estate taxes, it may create income tax consequences that exceed the benefits. For instance, selling appreciated stock to give as cash could generate capital gains tax that outweighs the estate tax savings. Similarly, gifting appreciated stock may result in a tax liability for your recipient, whereas inheriting the asset could offer a step-up in basis.
Gifting is irrevocable, meaning you cannot require the gift to be returned. Over-gifting might compromise your financial security, and if you later require government assistance such as Medicaid, excess gifting could jeopardize your eligibility.
The Advantage of Professional Help
Professional guidance helps you build a gifting strategy that is tax-efficient, integrates into your overall estate plan, selects the most appropriate assets for gifting, leverages special programs like 529 plans, and protects your financial independence.
Boulay’s Estate and Trust team is here to help you define your gifting objectives and craft the best solutions to meet your goals. To learn more about our estate and trust services, contact a Boulay advisor today.