Maximizing Wealth Transfer: How to Leverage Current Gift Tax Exemptions

As we approach gift tax changes that will take effect in 2026, high-net-worth individuals face a critical decision: take advantage of historically high gift tax exemptions now, or potentially leave millions on the table.

The 2017 Tax Cuts and Jobs Act (TCJA) made sweeping changes to the tax code that affected both businesses and individuals. The TCJA temporarily increased the amount of available estate and gift tax exemption from $5.6 million to $11.2 million, indexed for inflation. For the 2024 tax year, the basic exclusion is $13.61 million. After 2025, absent any legislative changes, the exemption amount will automatically return to the pre-TCJA level of $5 million per individual, adjusted for inflation. The IRS has issued final regulations that ensure there will be no claw back of the temporarily increased exemption if the taxpayer makes gifts and claims the higher exclusion amounts in effect from 2018 to 2025. This creates the opportunity for planning to utilize the “excess” exemption before it is reduced at the end of 2025.

There is a myriad of options ranging in complexity available for tax-efficient gift transfers. The following are a few of the more basic methods available which we would encourage customers to consider implementing for purposes of removing assets and associated appreciation, even if in small increments, which otherwise would be includible in the gross estate and be subjected to federal estate tax:

1. Make gifts qualifying for the gift tax annual donee exclusion (amount subject to change each year for inflation-adjustment). The exclusion amount for 2024 is $18,000. Gifts may be made outright to an individual or to a trust so long as a “withdrawal” power from the trust is made available.
2. Double the aforementioned annual donee exclusion benefit by having a spouse match these gifts using the spouse’s annual donee exclusion.
3. Further reduce your taxable estate by paying tuition bills directly to a school or by paying healthcare costs directly to a healthcare provider for the benefit of children, grandchildren, or other family members. These payments are not treated as gifts for federal gift tax purposes, as long as they are paid directly to the respective institution, but successfully and efficiently move assets out of the donee’s taxable estate without utilizing donee’s lifetime estate and gift tax exemption.
4. Make gifts of highly appreciated capital gains property. Not only does this shift the assets from your taxable estate, but it also has the potential to reduce the income tax rate to which the gains may be subjected upon sale of the assets. This is due to the tax basis of the gifted property transferring to the donee who may be subject to a lower tax bracket in the event of a sale of the property.

The list above includes several very straightforward gifting strategies; however, as noted, there are multiple options available for tax-efficient gift transfers, most of which may be tailored to a family’s net worth and desire to transfer wealth. Please contact someone from our Family Wealth Services team today to discuss implementation of one of the strategies noted above or otherwise.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.