In the latest episode of the T&E Talk video series, I had the opportunity to dive into a key estate planning strategy: gifting. It’s a topic that often gets overlooked, yet it holds tremendous potential for reducing taxable estates and supporting loved ones in meaningful ways.
Let’s start with the basics. The IRS allows an annual exclusion limit of $19,000 per individual, or $38,000 for couples who elect to split gifts. This means spouses can combine their exclusions to double the amount they can gift tax-free each year. It’s a simple yet powerful way to transfer wealth without triggering gift tax consequences.
Beyond annual exclusions, there’s the lifetime exemption, which is just under $14 million per person in 2025, and set to increase to $15 million in 2026. This exemption allows individuals to make substantial gifts over their lifetime without incurring gift taxes, though it’s important to track these gifts carefully, as they reduce the amount that can be passed tax-free at death.
One area that often causes confusion is gifting to non-U.S. individuals. While these gifts are unlimited, they are subject to reporting requirements if they exceed $100,000. And when it comes to estate taxes, non-U.S. individuals face a very different landscape: they receive only a $60,000 credit, and any amount above that is taxed at a 40% rate. That’s a steep price, and it underscores the importance of strategic planning.
I also explored the differences in estate planning strategies for U.S. vs. non-U.S. individuals. For U.S. persons, tools like irrevocable trusts, especially intentionally defective grantor trusts (IDGTs), can be used to reduce estate taxes while still being subject to income tax. For non-U.S. individuals, offshore structures such as foreign grantor trusts and offshore companies can help shield assets from U.S. estate taxes while maintaining control over distributions.
Another key part of the discussion focused on gift tax misconceptions and pitfalls. Many people assume that gifts are always tax-free, but the reality is that all gifts are taxable unless specifically excluded. For example, U.S. citizen spouses can gift to each other without limit, but gifts to other family members may be subject to tax once thresholds are exceeded.
I also emphasized the importance of filing IRS Form 709 for reportable gifts and touched on the 5-year look-back rule for Medicaid, which can claw back gifts made within five years of applying for benefits. And don’t forget: future interest gifts, like those that vest later, don’t qualify for the annual exclusion.
Ultimately, gifting isn’t just about generosity; it’s a strategic tool for removing future appreciation from your estate, which can significantly reduce estate tax liability and facilitate wealth transfer across generations.
If you’d like to hear more or watch the full episode, you can click here to watch on YouTube or listen to the podcast version on Spotify here.
