As you grow old, you may start to gain more wealth and accumulate new assets. Although including them in your will as future inheritance to your loved ones may seem reassuring, it can also significantly increase your estate taxes after you pass away.
However, there are many strategies available that can help minimize this tax dilemma — one of which is through proper utilization of your annual gift tax exemption.
What is a gift tax?
Gift tax refers to a federal tax imposed on the transfer of assets or money from one person to another without expecting something in return. This process helps ensure that wealth is taxed before it is transferred to another person or organization.
Are all gifts taxed?
The short answer is no; not all gifts incur taxes. Every year, the Internal Revenue Service (IRS) sets an annual exclusion amount to gift taxes. For 2025, each person in the US can send gifts totaling $19,000 per recipient annually, tax-free.
This means that if you gift some of your assets and they stay within the annual limit, you help achieve two things:
- You let your loved ones to inherit your assets while you are still alive.
- You reduce your estate’s size, which in turn also lowers the amount of your estate taxes.
There is also the lifetime gift tax exclusion. For 2025, the limit was set at $13.99 million per person. This means that you can give away a significant amount of your wealth over your lifetime without incurring federal gift taxes.
What type of assets can I give away as gifts?
Before you start transferring your select assets as gifts, it is highly ideal to strategize a plan first. You can do this by consulting with a financial advisor or an estate planning lawyer. Here are five examples of assets you can give away as gifts:
- Real estate property and land
- Artworks
- Vehicles
- Business shares
- Stocks and bonds
It is important to note that reaching the annual gift tax exclusion limit would mean that you must file a report to the IRS. Although you will not be taxed unless you exceed your lifetime gift tax exclusion limit, the form can help track your total lifetime gifting amount.
Preserve your wealth through careful estate planning
By understanding these basic gift tax principles and creating a tailored estate plan that fits your lifestyle, you can give away your wealth tax-free and manage your estate’s tax liabilities efficiently.
