Gifting Money and Assets: Tax Rules to Know

Gifting money and assets can be one of the most thoughtful and impactful ways to share your wealth with loved ones or support causes you care about. But navigating the tax rules surrounding gifting requires careful planning. In 2025, the annual gift tax exclusion is $17,000 per recipient, while the lifetime gift and estate tax exemption remains at $12.92 million (source: IRS). Understanding these limits and strategies can help you maximize the value of your gifts without triggering unnecessary taxes.

In my experience, gifting is not just about passing along wealth—it’s about creating opportunities and leaving a legacy. By learning the rules, you can ensure that your generosity benefits others without creating tax headaches.

Why Listen to Me?

As a CERTIFIED FINANCIAL PLANNER™ professional, I’ve guided individuals and families through the complexities of gifting, helping them balance generosity with smart tax planning. In my experience, the right strategy can transform gifting into a powerful financial tool for both the giver and the recipient.

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Key Takeaways

• You can gift up to $17,000 per recipient annually without triggering the gift tax.
• Gifting strategies like funding education accounts or donating to charity can provide additional tax benefits.
• Large gifts that exceed the annual exclusion count toward your lifetime exemption.

What Is Gifting?

Gifting involves transferring money, property, or other assets to another person without expecting anything in return. The IRS has specific rules to ensure that significant gifts are reported and, in some cases, taxed.

Annual Gift Tax Exclusion

In 2025, you can gift up to $17,000 per person per year without filing a gift tax return. Married couples can double this amount to $34,000 per recipient by splitting their gifts.

Source: FAQ on gift taxes

Lifetime Gift and Estate Tax Exemption

Gifts that exceed the annual exclusion count toward your lifetime exemption, which is $12.92 million in 2025. This exemption covers both lifetime gifts and the value of your estate at death.

Source: The Estate Tax and Lifetime Gifting

How to Maximize Your Gifting Strategy

1. Use the Annual Exclusion Wisely
In my experience, the annual exclusion is one of the simplest and most effective ways to transfer wealth tax-free. By gifting smaller amounts to multiple recipients, you can reduce the size of your taxable estate without using your lifetime exemption.
2. Fund Education or Medical Expenses
The IRS allows you to pay tuition or medical expenses directly to an institution without counting it as a gift. This is a great way to help a loved one without reducing your annual exclusion.
Example: Covering a grandchild’s private school tuition or paying for a friend’s medical procedure directly.
3. Set Up a 529 Plan
Contributions to a 529 education savings plan count as gifts, but you can accelerate your contributions by funding up to five years’ worth of annual exclusions at once.
Example: In 2025, you could contribute $85,000 ($17,000 x 5) to a child’s 529 plan without triggering the gift tax.
4. Donate to Charity
Charitable donations are not subject to gift tax, and they may qualify for an income tax deduction. Establishing a donor-advised fund allows you to make a large donation now and decide on specific charities later.
5. Transfer Appreciated Assets
Gifting stocks or other appreciated assets can provide tax benefits for both you and the recipient. In my experience, this strategy works best when the recipient is in a lower tax bracket, as they may pay less in capital gains taxes.
What Happens If You Exceed the Annual Exclusion?
Gifts that exceed the $17,000 annual limit require you to file a Form 709: United States Gift (and Generation-Skipping Transfer) Tax Return. However, this doesn’t mean you’ll owe taxes—it simply reduces your lifetime exemption.
Example: You gift $50,000 to a friend in 2025. After subtracting the $17,000 exclusion, $33,000 counts against your lifetime exemption. If you’ve used up your exemption, the excess would be taxed at 40%.

Common Questions About Gifting

1. Can I Give to My Spouse Tax-Free?

Yes, gifts to your U.S. citizen spouse are unlimited and not subject to gift tax. However, gifts to a non-citizen spouse are limited to $175,000 annually (2025 limit).

2. Are Gifts Considered Taxable Income?

No, recipients generally do not pay income tax on gifts. However, if you gift an appreciated asset, the recipient inherits your cost basis and may owe capital gains tax when they sell it.

3. Can I Take Back a Gift?

Once a gift is made, it’s irrevocable. In my experience, this is why it’s essential to carefully consider large gifts before making them.

Steps to Create a Gifting Plan

1. Identify Your Goals: Determine whether you want to support family, fund education, or contribute to charity.

2. Calculate Your Available Exclusions: Use the annual exclusion and consider your lifetime exemption.

3. Choose the Right Assets: Decide whether to gift cash, stocks, real estate, or other items.

4. Work With Professionals: Consult a financial advisor or estate planning attorney to ensure compliance with IRS rules.

Case Example: Smart Gifting in Action

Scenario: Bob and Linda want to support their three grandchildren while reducing their taxable estate.

What They Did:

• Gifted $34,000 annually ($17,000 each) to each grandchild, leveraging the annual exclusion.
• Paid private school tuition directly to the school, which didn’t count toward the annual exclusion.
• Contributed $85,000 to each grandchild’s 529 plan, accelerating five years of gifting.

Result:

Bob and Linda reduced their estate by $657,000 while funding their grandchildren’s education and avoiding gift taxes.

FAQs About Gifting

1. What Assets Are Best to Gift?

Cash is the simplest option, but appreciated assets like stocks can offer tax advantages. Real estate or business interests may require additional planning.

2. How Do Gifts Affect Medicaid Eligibility?

In my experience, gifting can complicate Medicaid eligibility due to the “look-back period,” which penalizes gifts made within five years of applying for benefits.

3. Can I Gift to a Trust?

Yes, gifting to a trust can provide control over how the assets are used while offering potential tax benefits.

Conclusion

Gifting money and assets is a powerful way to support loved ones, reduce your taxable estate, and leave a lasting impact. By understanding the tax rules and leveraging strategies like 529 plans, charitable donations, and direct payments, you can maximize the benefits of your generosity.

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Disclaimer: Case studies are hypothetical and do not relate to an actual client of Lock Wealth Management. Clients or potential clients should not interpret any part of the content as a guarantee of achieving similar results or satisfaction if they engage Lock Wealth Management for investment advisory services.