You may have heard about the billionaire who gave away all of his money anonymously while he was alive because he believed that “it’s a lot more fun to give while you live than to give while you are dead.”1 He was definitely onto something because research has shown that giving to others benefits both the recipient and the giver.2 When we give gifts, our brains release chemicals that make us feel pleasure. This can happen when giving a gift to a loved one for a special occasion or helping them without expecting anything in return.
As if feeling good wasn’t enough of a reason, federal tax laws have made it easier to gift money or property without tax implications, at least through the end of 2025 when the laws may change. Spouses who are U.S. citizens are the exception to the rule — whether during one’s lifetime or at death, there is an unlimited amount that won’t be taxed if transferred. Tax-free gifts to non-U.S. citizen (or green-card holder) spouses are limited to $185,000 in 2024 and $190,000 in 2025 (indexed annually for inflation).
Taking advantage of tax laws
You can give as many individuals as you want each year up to a set amount ($18,000 in 2024; $19,000 in 2025) tax-free if they can use and enjoy it now, known as a “present interest in property.” Married couples filing their taxes jointly can give double those amounts. Unlike personal 1040 tax returns that can be filed jointly, Form 709 is filed on an individual basis and allows for “gift splitting” to double the allowed annual exclusion. Gift splitting in a year of death or divorce is only allowed during the time of marriage. The recipient does not have to report the income on their tax return if it comes from a U.S. source. Anything over the set exclusion amount must be filed on IRS Form 709. In addition, the overage will count as part of your lifetime gift tax amount.
The lifetime gift tax allows you to give away a certain amount over your entire lifetime, typically adjusted each year for inflation, without paying gift tax ($13.61 million in 2024 and $13.99 million in 2025).3 It is a combination of a gift tax and estate tax exclusion. If you are planning a long-term strategy, you can gift up to the exclusion amount while you are living or upon your death. In either case, any overage will incur a 40% tax. For example, if you gift $15 million in 2025 while you’re alive, you pay tax on the $1.1 million that is over the exclusion amount. If the $15 million is transferred to heirs after you pass away, the estate will have to pay tax on the $1.1 million and the executor will need to file Form 706.
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Another tax advantage to gifting during your lifetime while your hands are warm, is that you can reduce the value of your estate and thereby reduce the estate taxes. This should be considered as a factor in your overall estate plan.
Choosing how to give while you live
There are many ways to give tax-free while you’re living that go beyond writing a check. Some gifts count towards the annual or lifetime gift or estate tax exclusion, while others don’t. Therefore, it’s crucial that you understand the rules or get assistance from a professional to navigate gift tax complexity.
Here are some of the options to consider for giving while you’re living:
Gifts subject to the exclusion
- Stocks and non-cash property: While you can gift securities or stock in a company to someone that apply to the gift tax exclusion, keep in mind that if the recipient sells the stock, they could incur capital gains tax and potentially any applicable state tax. You can gift real estate, cars, fine art, royalties, or any other type of property but, again, consider the capital gains tax implications that the beneficiary might incur if they sell the property. These types of gifts transfer both your holding period (time you owned the asset) and cost basis (original value of the asset) to the recipient though the gift is at fair market value. Therefore, if you held the item(s) longer than one year, the gift receiver would receive long-term tax treatment if sold the day they receive the gift. There are “special gain rules” that may apply depending on sales price, fair market value, and cost basis.
- Savings: The Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA) are custodial brokerage accounts that allow you to control the assets and investments for a minor until they turn 18 or 21 typically, depending on the state, at which point the account is transferred to them. These types of accounts have restrictions, including irreversible transfers into the account. One caveat here is the possibility of the kiddie tax applying on dependent children up through age 23, depending on the income earned. Kiddie taxes happen when portfolio income from interest, dividends, and capital gains exceeds $3,000 in 2024, resulting in tax on any overage at the parent’s rate (including other applicable children).
- Special rule for super funding 529 plans: When making gifts to a 529 college savings plan, the IRS offers an option to front-load contributions up to five years at once. In 2024, you can gift five times $18,000 or $90,000 ($180,000 for a married couple) or up to $190,000 if chosen in 2025. Another important consideration here is that many (not all) of the 41 taxable states offer tax deductions in limited fashion for 529 plan contributions. Consider filing gift tax returns during the 5-year period to help ensure that any gifts given during the ensuing five years don’t exceed the cost-of-living adjustments in the gifting limits.
Unlimited gifts not subject to the annual exclusion
- Education or medical payments: You must make the payments directly to the educational or health care providers for another’s qualified expenses to avoid incurring gift taxes. The amount you can pay is unlimited and does not apply to your gift tax annual exclusion amount, meaning you can make these direct payments for anyone and still gift them the annual exclusion amount.
- Gift in trust: One type of irrevocable trust is subject to the annual gift tax exclusion but NOT the lifetime exclusion, which is commonly known as a Crummey trust. It allows you to gift assets tax-free if you designate a specific period in which the beneficiary can take withdrawals, typically a 30-to-60-day period. This can be useful if you’ve exceeded your lifetime gift tax exclusion amount and still want to be able to give money tax-free or you want to control the timing, such as gifting a minor when they turn age 21.
Getting started
The right time to gift assets to your loved ones might be now, allowing you to enjoy the experience together. Gifts by check need to be cashed in the year written to count as a timely gift. Remember, annual gifting includes all gifts during the year (birthdays, holidays, graduations, weddings, trips, and more). While tax benefits may not be the primary goal, they are certainly worth considering. And with many gift options that offer tax advantages — not all are included here — it could be wise to consult financial or tax professionals to find the best choice for your situation. Talk to your Mercer Advisors wealth advisor about the options that fit best into your financial plan and wishes.
If you’re not a Mercer Advisors client, let us know if we can help you with your gifting strategy. Our in-house team includes specialists in financial, estate, and tax planning, as well as investment management and insurance. Let’s talk.
- “Charles Feeney: The billionaire who gave away $8 billion and chose to die poor,” Gulf News, Oct. 21, 2024.
- “Understanding the brain science behind giving and receiving gifts,” University of Arizona News, Dec. 5, 2023.
- “IRS releases tax inflation adjustments for tax year 2025,” Internal Revenue Service, Oct. 22, 2024.
- “Popular gifts & gifting behavior in the United States – statistics & facts,” Statista, Nov. 7, 2024.
- “How Some Parents Spend $10K a Year Supporting Adult Children — And How To Stop,” MSN, Dec. 12, 2023.
- “Money as gifts in the U.S., by generation 2024,” Statista, Oct. 9, 2024.
