There are several ways to decrease the size of a taxable estate, all while minimizing taxes to your estate and heirs. A recent article from Investopedia, “Tax-Smart Giving: How to Gift $1M Without the IRS Calling,” says the federal gift tax is applied when one individual transfers property to another and doesn’t receive anything in return.
A gift can be any transfer of funds, property, or assets, including cash gifts, loan forgiveness, or the sale of real estate for less than its market value. You may also be able to make an interest-free loan as a gift. An important note: check with your estate planning attorney to be sure any gifts align with your overall estate plan.
Who pays taxes on a gift? The federal gift tax is paid by the person giving the gift, aka the donor, and not the recipient. A portion of the value of all gifts is tax-free. In 2025, the exclusion is generous—$19,000 per person per year. A gift can be made to as many people as you want to give a gift to. Married couples may make a gift of up to $38,000 tax-free.
Unless your estate is worth more than $13.99 million in 2025, chances are you don’t have to worry about gift taxes. Annual gifts made during your lifetime are worth more than the exclusion for the applicable year, allowing for even more generosity. The gifts can be carried over to the value of your estate, making your entire lifetime gift and estate tax exclusion $13.99 million.
One caveat: the IRS should be advised annually of any non-exempt portion being carried forward, using IRS Form 709. File the form even if you don’t owe any gift taxes. This includes making gifts with a spouse, making a gift to a non-U.S. citizen spouse, or making a gift of future interests. Some people prefer to file a Form 709 to help them track their gifting, while others consider the form a minor detail to prevent unanticipated issues.
For tax planning, you may want to give as much as possible before December 2025 ends. Some spouses give the same individual $19,000 on December 31 for one year, then make the same amount almost immediately after New Year’s Day. This is a per-year limit, making it possible for a married couple to gift $76,000 without carrying any portion over to the following year.
There’s another reason to use the lifetime exclusion. A portability provision allows married couples to transfer any unused portions of the $13.99 million lifetime gift and estate tax exclusion to a surviving spouse.
Keep in mind that some gifts are not considered gifts. If you are writing checks for tuition or medical care, those are not considered gifts. The only way around this would be to write checks to the family members and have them use the money for tuition or medical care.
The current federal tax rate on gifts and estates is 40% in 2025. If you neglect to fill out a Form 709 and exceed the limit, you’ll have to make a sizable gift to the IRS.
Speak with your estate planning attorney and CPA about how to use these various limits to minimize your tax liability and enhance a legacy for loved ones.
At The Werner Law Firm, we understand that gifting can be a powerful estate planning strategy—but only when done with intention. Our experienced estate planning attorneys can help you make tax-smart gifts that protect your wealth and provide meaningful support to your loved ones.
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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