The Complete Guide to Gifting in 2025: Strategies for Preserving Wealth and Creating a Legacy

Introduction: Why Gifting Matters Now More Than Ever

As we navigate through 2025, many families are facing a critical crossroads in their financial planning. With significant tax law changes on the horizon and evolving family dynamics, understanding the power of strategic gifting has never been more important.

I've spent nearly three decades helping families preserve their wealth, protect their assets, and create meaningful legacies. In that time, I've seen firsthand how thoughtful gifting strategies can transform family financial situations—not just by reducing tax burdens, but by creating joy and security for multiple generations.

This year is particularly significant because we're approaching a major change in estate tax laws. The generous federal estate tax exemption of $13.99 million per person is scheduled to "sunset" on January 1, 2026, potentially dropping to around $5-6 million (with inflation adjustments). This looming deadline creates both urgency and opportunity for families considering wealth transfer strategies.

In this comprehensive guide, we'll explore the technical aspects of gift tax rules, but more importantly, we'll discuss how gifting can align with your deeper values and goals. Whether you're concerned about protecting assets from healthcare costs, helping the next generation thrive, or simply wanting to experience the joy of giving while you're alive to see it, this guide will provide you with practical strategies and heartfelt wisdom.

Understanding the Basics: Gift Tax Rules for 2025

The Annual Gift Tax Exclusion: Your First Line of Wealth Transfer

In 2025, you can give up to $19,000 to any individual without triggering gift tax reporting requirements. This amount, known as the annual gift tax exclusion, is a powerful tool for gradually transferring wealth without paperwork or tax consequences.

Here's what makes this strategy so effective:

• Each person can give $19,000 per recipient: This means if you're married, you and your spouse can together give $38,000 to each person annually.
• No limit on recipients: You can give to as many different people as you wish.
• No paperwork required: Gifts within this annual exclusion don't require filing a gift tax return.

Let me share a real-world example (with names changed for privacy):

Tom and Sarah, clients in their early 70s, have three married children and seven grandchildren. Each year, they give $19,000 from each of them to each child, each child's spouse, and each grandchild. That's $38,000 per recipient, multiplied by 13 recipients, allowing them to transfer $494,000 annually to their family completely tax-free and without filing any gift tax returns. Over just five years, they've moved nearly $2.5 million from their estate while helping their family in meaningful ways.

Beyond the Annual Exclusion: Education and Medical Exceptions

The IRS provides additional gifting opportunities that don't count against your annual exclusion or lifetime exemption:

Direct Payment of Educational Expenses

You can pay unlimited amounts for tuition expenses when paid directly to the educational institution. Important notes:

• Must be paid directly to the qualified educational institution
• Covers tuition only (not books, supplies, room and board)
• Works for any level of education: preschool through graduate school

Direct Payment of Medical Expenses

Similarly, you can pay unlimited amounts for medical expenses when paid directly to the healthcare provider:

• Must be paid directly to the medical provider
• Includes qualifying medical, dental, and vision expenses
• Can include medical insurance premiums

These exceptions create powerful opportunities for helping family members while preserving your gift tax exclusions for other purposes.

One of my clients, a grandmother in her late 60s, pays the private school tuition directly to the school for all four of her grandchildren. This amounts to over $120,000 annually that she can give without using any of her annual gift exclusions or lifetime exemption. Meanwhile, she still gives each grandchild $19,000 annually for other expenses and savings.

When Gifts Exceed the Annual Exclusion

If you give someone more than $19,000 in a single year (or $38,000 for married couples splitting gifts), you'll need to file IRS Form 709, the United States Gift Tax Return. Here's what happens:

• The excess amount reduces your lifetime gift and estate tax exemption
• In 2025, this lifetime exemption is $13.99 million per person
• No actual gift tax is due until you've used your entire lifetime exemption
• The return is due by April 15 of the year following the gift

It's important to understand that filing a gift tax return doesn't necessarily mean paying gift tax—it simply means reporting the gift and reducing your lifetime exemption amount.

The 2026 Sunset: A Closing Window of Opportunity

Understanding the Upcoming Tax Law Changes

One of the most critical factors influencing gifting strategies right now is the scheduled "sunset" of current estate tax exemption levels. The Tax Cuts and Jobs Act temporarily doubled the estate tax exemption, but this increase is set to expire after December 31, 2025.

What this means:

• Current exemption (2025): $13.99 million per person
• Projected exemption after sunset (2026): Approximately $5-6 million per person (with inflation adjustments)

This represents a potential reduction of around $8 million per person in estate tax exemption. For married couples, that's nearly $16 million of additional estate value that could become taxable if no planning is done.

Why 2025 May Be the Ideal Time for Significant Gifts

For those with estates valued above the post-sunset exemption amount, 2025 represents a "use it or lose it" opportunity. Making substantial gifts before the end of 2025 allows you to lock in the current higher exemption amounts.

The IRS has confirmed there will be no "clawback" if you use the higher exemption before it sunsets. This means gifts made now that use the current higher exemption will not be retroactively taxed if the exemption decreases as scheduled.

Consider this scenario:

Robert and Linda have a combined estate worth $20 million. If they do nothing and both pass away after 2025 when the exemption has decreased to approximately $12 million for both of them combined, their estate could face taxes on roughly $8 million. At a 40% estate tax rate, that's a potential tax bill of $3.2 million.

Instead, they decide to gift $8 million to an irrevocable trust for their children and grandchildren in 2025. This uses the "extra" exemption amount that would otherwise disappear in 2026. When they eventually pass away, only the remaining $12 million is in their estate, which would be covered by their remaining exemption (assuming the exemption stays at approximately $6 million per person after inflation adjustments).

Strategic Gifting: Beyond Tax Considerations

The Emotional Benefits of Giving While Living

While tax planning often drives gifting discussions, the emotional benefits of giving while you're alive can be even more meaningful. Author Bill Perkins explores this concept deeply in his book "Die With Zero," advocating for using your financial resources to create experiences and support loved ones while you can witness and share in the joy.

Consider these emotional benefits of lifetime giving:

Witnessing the Impact of Your Gifts

There's profound satisfaction in seeing how your financial support changes lives:

• Watching grandchildren graduate from college without debt
• Seeing your children purchase their first home with your help
• Supporting a family member starting a business
• Funding family vacations that create lasting memories

One client, James, had always planned to leave his lake cabin to his children in his will. After reading "Die With Zero," he decided instead to transfer it to them while he was alive. Now he spends summers there with his children and grandchildren, teaching them to fish and sail as his father taught him. "The joy of seeing four generations enjoying this place together is worth far more than any tax savings," he told me.

Creating Family Stories and Traditions

Strategic gifting can help establish family narratives and values:

• Annual family trips funded through gifting
• Educational opportunities that become part of family culture
• Supporting causes that align with family values
• Teaching financial responsibility through structured gifts

Building Financial Literacy Across Generations

Involving younger family members in gifting decisions creates teaching moments:

• Understanding the value of investments
• Learning about tax planning
• Developing responsible approaches to windfalls
• Practicing family philanthropy

The "Die With Zero" Philosophy

Bill Perkins' book "Die With Zero" challenges traditional inheritance-focused planning with a simple premise: the goal should be to use your resources optimally throughout your lifetime rather than maximizing what you leave behind.

Key concepts from the book that relate to gifting:

1. Time-value of experiences: Experiences are more valuable when you're younger and healthier. Giving now allows both you and recipients to enjoy the benefits while in good health.
2. Memory dividends: Experiences create memories that pay "dividends" of happiness throughout life. Gifting that enables experiences creates lasting value beyond monetary worth.
3. Giving with warm hands: Perkins argues giving while alive (with "warm hands") is more meaningful than gifts left after death (with "cold hands").
4. Finding the optimal transfer point: For each potential gift, there's an optimal time to give that maximizes value to both giver and recipient.

A client in her 70s was planning to leave significant funds to help her grandchildren with college education. After discussing the "Die With Zero" concepts, she realized that waiting meant she might never see them graduate. Instead, she established 529 plans and began funding them annually, allowing her to be actively involved in their educational journeys.

Practical Gifting Strategies for Different Goals

For Estate Tax Reduction

If your estate exceeds the projected post-2025 exemption amount, consider these approaches:

Strategic Use of the Annual Exclusion

Systematically using your annual exclusion gifts can transfer significant wealth over time:

• Create a spreadsheet to track annual gifts to family members
• Consider gifts to both direct descendants and their spouses
• Include trusted non-family members if appropriate
• Set up automatic transfers for consistency

Leveraging the Lifetime Exemption Before It Decreases

For larger estates, using some or all of your lifetime exemption before it sunsets can produce significant tax savings:

• Irrevocable trusts to hold gifted assets
• Family limited partnerships or LLCs
• Direct gifts of appreciating assets (with basis considerations)
• Spousal lifetime access trusts (SLATs)

Advanced Techniques for Larger Estates

For estates well above the exemption amount, consider more sophisticated strategies:

• Grantor retained annuity trusts (GRATs)
• Charitable lead trusts
• Installment sales to intentionally defective grantor trusts
• Dynasty trusts in states with favorable rule against perpetuities laws like Florida

For Supporting the Next Generation

If your primary goal is helping children and grandchildren thrive, consider these approaches:

Education-Focused Strategies

• 529 college savings plans
• Direct tuition payments to schools
• Educational trusts with incentive provisions
• Funding for specialized training or certifications

Homeownership Support

• Gifts for down payments
• Intra-family loans at favorable interest rates
• Co-ownership arrangements
• Trust structures that provide housing benefits

Entrepreneurship Encouragement

• Seed capital for business ventures
• Mentorship alongside financial support
• Family bank structures
• Specialized training and education

For Charitable Impact

For those with philanthropic goals, strategic giving offers tax benefits alongside social impact:

Donor-Advised Funds

• Immediate tax deduction
• Ability to grow contributions tax-free before distribution
• Simplified record-keeping
• Family involvement in giving decisions

Charitable Trusts

• Charitable remainder trusts for income and eventual charitable gifts
• Charitable lead trusts for charitable giving now and family transfers later
• Private foundations for larger charitable initiatives
• Qualified charitable distributions from IRAs for donors over 70½

Special Considerations for Gifting

Basis Considerations: The Hidden Cost of Some Gifts

When giving appreciated assets like stocks or real estate, it's crucial to understand basis rules:

Carryover Basis for Gifts

When you give appreciated property during your lifetime:

• The recipient takes your cost basis (what you paid)
• They'll pay capital gains tax on the entire appreciation when they sell
• This can result in higher taxes than if the asset was inherited

Step-Up in Basis at Death

When property passes through your estate:

• The basis is "stepped up" to fair market value at your date of death
• This can eliminate capital gains tax on all appreciation that occurred during your lifetime

Consider this example: You purchased stock for $10,000 that's now worth $100,000. If you gift it during your lifetime, the recipient has your $10,000 basis and will owe capital gains tax on $90,000 when they sell. If they inherit it after your passing, their basis becomes $100,000, potentially eliminating capital gains tax entirely.

This difference means you should generally:

• Gift cash or high-basis assets when possible
• Consider retaining highly appreciated assets in your estate
• Analyze the trade-offs between gift tax savings and income tax consequences

Long-Term Care Considerations: The 60-Month Lookback

For many families, protecting assets from nursing home and long-term care costs is a major concern. It's critical to understand that gifting can significantly impact eligibility for Medicaid benefits.

Understanding the Medicaid Lookback Period

• All gifts made within 60 months (5 years) of applying for Medicaid are scrutinized
• Gifts during this period can create periods of ineligibility for benefits
• The penalty is based on the amount gifted divided by the average monthly cost of care

One family I worked with had gifted $150,000 to their children two years before needing nursing home care. With nursing home costs of $10,000 monthly in their area, this created a 15-month period where they were ineligible for Medicaid assistance, requiring them to pay privately for care they couldn't afford.

Safer Alternatives for Long-Term Care Planning

If long-term care concerns exist, consider these alternatives to outright gifting:

• Specialized irrevocable trusts designed for Medicaid planning
• Conversion of countable assets to exempt assets
• Properly structured annuities
• Long-term care insurance to avoid Medicaid dependency

The key message: Never make substantial gifts without considering potential long-term care implications. What seems like generous financial help to family could inadvertently create serious problems if nursing home care becomes necessary within five years.

Family Dynamics and Communication

Even the most tax-efficient gifting plan can create family conflict if not handled with sensitivity:

Potential Challenges

• Perceived inequity between recipients
• Misaligned expectations about future gifts
• Dependency or entitlement issues
• Concerns about financial responsibility

Best Practices

• Clear communication about intentions
• Written gifting policies or plans
• Family meetings to discuss wealth transfer philosophy
• Professional facilitation for difficult conversations

A client with a successful business wanted to gift company shares to his children who worked in the business, while giving cash of equal value to his other children. Without proper communication, the business-involved children felt they were being treated unfairly since they "earned" their shares. A facilitated family meeting helped everyone understand the parent's intention of equal treatment while recognizing different contributions.

Practical Implementation: Building Your Gifting Strategy

Step 1: Define Your Goals

Before implementing any gifting strategy, clarify your underlying objectives:

• Reducing estate taxes
• Supporting family members' specific needs
• Creating family legacy
• Charitable impact
• Asset protection
• Experiencing the joy of giving while living

Understanding your primary motivation will guide which strategies make the most sense for your situation.

Step 2: Assess Your Financial Security

Only give assets you truly won't need:

• Work with financial advisors to model retirement needs
• Consider healthcare cost projections
• Maintain sufficient reserves for emergencies
• Account for inflation and longevity

Remember: your own financial security should come first. Even Bill Perkins in "Die With Zero" acknowledges the importance of meeting your own needs before optimizing gifts to others.

Step 3: Identify the Right Assets for Gifting

Not all assets are created equal when it comes to gifting:

• Cash: Simplest but offers no tax leverage
• Appreciated securities: Consider basis implications
• Business interests: May qualify for valuation discounts
• Life insurance: Can leverage gifts through policy ownership
• Real estate: Consider fractional interest gifts
• Retirement assets: Generally poor assets for lifetime giving due to income tax consequences

Step 4: Select the Appropriate Gifting Vehicles

Based on your goals and assets, determine the best structures:

• Outright gifts: Simplest but offer least control
• Trusts: Provide control, protection, and potentially tax benefits
• Family entities: Can facilitate business and real estate transfers
• Educational accounts: Specialized vehicles for education funding
• Charitable vehicles: For philanthropic goals

Step 5: Implement with Professional Guidance

Work with qualified advisors to execute your plan:

• Estate planning attorney with gift tax expertise
• CPA familiar with gift tax returns and basis rules
• Financial advisor to assess impact on overall plan
• For business interests, business valuation professionals

Real-Life Gifting Scenarios: Finding Your Strategy

Scenario 1: The "Sunset" Planning Family

The Situation: Michael and Jennifer, both 72, have an estate valued at $22 million, including their home, investment accounts, and Michael's interest in a family business. Their main concern is the reduction in estate tax exemption coming in 2026.

The Strategy:

• Use $8 million of their combined exemption in 2025 through gifts to an irrevocable trust for their children and grandchildren
• Structure the trust as a "spousal lifetime access trust" so Jennifer can access funds if needed
• Include business interests in the gift to take advantage of potential valuation discounts
• Retain their home and sufficient assets for retirement security
• Continue annual exclusion gifts to reduce estate further

The Outcome: By using the "extra" exemption before it disappears, they potentially save over $3 million in estate taxes while maintaining their lifestyle and financial security.

Scenario 2: The Education-Focused Grandparents

The Situation: David and Linda, in their mid-60s, have seven grandchildren ranging from newborn to college age. They want to ensure all grandchildren receive educational opportunities without burdening their parents with debt.

The Strategy:

• Establish and fund 529 plans for each grandchild
• Make direct tuition payments to schools as needed
• Create an education trust with guidelines for distribution based on educational achievement
• Use annual exclusion gifts to parents to help with related educational expenses

The Outcome: Their grandchildren receive valuable educational support while David and Linda enjoy watching them develop and achieve their goals. The structure ensures gifts are used as intended while minimizing tax impact.

Scenario 3: The Long-Term Care Concerned Couple

The Situation: Robert and Susan, both 78, have assets of $900,000, mostly in retirement accounts, savings, and their home. They're concerned about potential nursing home costs depleting their estate before it can pass to their three children.

The Strategy:

• Instead of outright gifts (which would trigger the 60-month lookback), create a properly structured irrevocable trust designed for Medicaid planning
• Transfer their home and a portion of their liquid assets to this trust
• Maintain sufficient resources outside the trust for their needs
• Purchase a Medicaid-compliant annuity to convert countable assets to an income stream if needed

The Outcome: Assets in the trust may be protected from long-term care costs after the five-year lookback period, while Robert and Susan maintain access to income and resources needed for their care.

Scenario 4: The Family Business Transition

The Situation: James, 67, owns a successful construction company worth approximately $5 million. His daughter works in the business and wants to eventually take over, but James is concerned about treating his non-involved son equally in his estate plan.

The Strategy:

• Recapitalize the business into voting and non-voting shares
• Begin gifting non-voting shares to his daughter annually using the $19,000 exclusion
• Use some of his lifetime exemption to gift larger portions before the 2026 sunset
• Purchase life insurance in an irrevocable trust to provide equal value to his son
• Create clear communication about the plan with both children

The Outcome: James transitions the business gradually while maintaining control, minimizes estate taxes by removing future appreciation from his estate, and creates equitable treatment between his children.

Taking Action: Your Next Steps in Gifting Planning

Assess Your Current Situation

Start by understanding where you are today:

• Review your estate's current value
• Identify assets suitable for gifting
• Consider family needs and dynamics
• Evaluate your retirement security
• Assess potential tax exposure

Create a Gifting Philosophy

Before diving into technical strategies, develop your personal approach to giving:

• What values do you want your gifts to reflect?
• How much control do you want to maintain?
• What responsibilities do you want recipients to have?
• How will you balance treatment of different recipients?
• What is your timeline for implementation?

Consult with Qualified Professionals

Strategic gifting requires expert guidance:

• Work with an experienced estate planning attorney
• Consult with financial advisors about impact on your plan
• Involve tax professionals for implementation and reporting
• For business owners, include business succession experts

Develop Written Documentation

Documenting your intentions provides clarity:

• Create a gifting policy or mission statement
• Keep clear records of all gifts
• Document your intentions if gifts aren't equal
• Consider letters to recipients explaining your purposes

Review and Adjust Regularly

Gifting isn't a one-time event but an ongoing process:

• Review annually to assess impact on your financial security
• Adjust as tax laws change (especially after the 2026 sunset)
• Modify approaches based on family circumstances
• Evaluate effectiveness in achieving your goals

Conclusion: The True Power of Strategic Gifting

As we've explored throughout this guide, gifting is about far more than tax planning. When approached thoughtfully, it becomes a powerful tool for expressing values, building family strength, and creating meaningful impact.

The current tax environment, particularly with the upcoming exemption sunset in 2026, creates unique opportunities for strategic wealth transfer. For many families, 2025 represents an ideal time to implement or accelerate gifting plans.

However, the most successful gifting strategies balance tax efficiency with more fundamental concerns: financial security, family harmony, and personal fulfillment. By giving with intention and structure, you can create benefits that extend far beyond financial value.

Remember too that gifting strategies interact with other important planning considerations, particularly potential long-term care needs. Any substantial gifts should be made only after careful consideration of their impact on your overall plan.

How We Can Help

If you have questions about gifting, need to create an estate plan, update an existing one, or want to discuss how to protect your home and life savings from long-term care or nursing home costs, we're here to help.

Call us at our Florida office at 941-909-4644 or our Minnetonka, MN office at 763-420-5087 to schedule a consultation. Alternatively, fill out the contact form on this page, and a member of our team will reach out to schedule your consultation.

With nearly three decades of experience helping families like yours with estate and elder law planning, we can help you develop and implement gifting strategies that align with your values and goals while navigating complex tax and legal considerations.

Your legacy deserves careful planning. Let's work together to create a gifting strategy that provides security, joy, and lasting impact for the people and causes you care about most.

If you would like to discover more, join us in my upcoming masterclass where I will be revealing strategies I use with my private clients and their families to help tham avoid probate, save on taxes, protect the money they leave for their kids in the event they get divorced, and much more. Click here to sign up.