Estate tax update: How to make the most of your gifting

By Tara Torseth, CPA

The end of the year is upon us, which means it’s the season of gifting. If you haven’t already, it’s important to consider how recent tax law changes could impact your giving this year. Spoiler alert: Gifting is likely still a good idea.

 

Here’s what you should know about gifting this year, along with several actions you can take to maximize your gifts as well as your tax benefits.

 

The federal estate and gift tax exemption is set to increase in 2026.

Earlier this year, there was a great deal of uncertainty around the federal estate and gift tax exemption, as it was scheduled to sunset to approximately $7 million in 2026.

The One Big Beautiful Bill (OBBB) Act, which was signed into law on July 4, not only left the current exemption amount as is — currently $13.99 million for single filers ($27.98 million for married couples) — it also increased it.

Starting on January 1, 2026, the estate and gift tax exemption will increase to $15 million ($30 million for married couples). This change is permanent, meaning the provision does not have a scheduled end date. Instead, the annual exemption amount will be adjusted for inflation (i.e., increased) each year.

 

Take advantage of planning opportunities.

If you have assets over the federal and/or state estate exemption, gifting can be a valuable tool. It can remove the asset and its future appreciation from your estate.

If you haven’t made your 2025 gifts yet or are considering the amounts you want to gift for the year, below are some planning opportunities around gifting to consider.

 

Planning opportunities:

• Use your annual gift tax exemption. Currently, taxpayers can gift up to $19,000 per recipient, per year ($38,000 for married couples). The exclusion is applied to each person you gift to, not the total amount of all gifts you make. For example, for 2025 you can give $19,000 to each of your children, grandchildren, and even friends, and none of these gifts would be considered “taxable gifts.”
• Cover education and health care expenses. One way to give to your children or grandchildren is by covering their (qualified) education or health care expenses. These gifts won’t count toward your annual gift exclusion—if you pay them directly to the health care provider or institution.
• Fund 529 p Another way to give a large gift is to make a lump-sum contribution to your child’s or grandchild’s 529 plan. Currently, the IRS allows taxpayers to contribute up to five years (for a married couple this would be $38,000 x 5 or $190,000) at once to a 529 plan.

Funding a 529 plan can be a great gifting option for a new grandchild, as it allows you to get the assets into an account where they can start growing from day one. This strategy can help to maximize the potential for tax-free compounded earnings over time.

It does require you to file a gift tax return to elect to treat the gift as being made over five years. During the five-year period, you cannot make any additional gifts to the same beneficiary without those gifts being subject to gift tax or counting against your lifetime exemption.

 

What happens if you exceed the annual gift tax exemption?

If you exceed the annual exemption (2025 and 2026 are both set at $19,000) this does not necessarily mean you owe gift tax; the excess amount simply reduces your lifetime gift and estate tax exemption.

If you go over the annual exemption, you will need to file a 709 Gift Tax Return, so be sure to discuss with your tax preparer.

 

Timing is everything.

One more thing to think about as you plan for the year ahead: Consider making your 2026 gifts in January. In other words, change your end-of-year gifts to New Year’s gifts.

 

Here’s why this could be a wise move:

• Doing so removes the year of growth on those assets from your estate.
• If your health or other circumstances were to change during the year, it can be nice to have already taken care of your planned gifts.
• If you have a taxable Minnesota estate (over $3 million individually), it can be tax advantageous to do your gifting early in the year. This is because Minnesota adds back in to your estate taxable gifts made within three years of the date of the gift.

 

Maximize your gifts and tax benefits.

Gifting can not only be a tax-advantageous planning strategy — it also can allow you to make a lasting impact on the lives of others. Being thoughtful about how and when you gift can help you make the most of it.

To help you explore your options for gifting, our estate tax experts are here to assess your situation and answer your questions. We can provide guidance for your gifting strategy and, if needed, prepare your gift tax returns. Let’s start a conversation — contact us today.