Gifting assets while you're alive can be a powerful way to support loved ones, reduce your taxable estate, and see the impact of your generosity firsthand.
Below are a few considerations and opportunities you may want to be aware of as you consider making lifetime gifts:
Don’t Ignore the Tax Reporting
The IRS allows generous annual gift tax exclusion gifts (up to $19,000 per recipient in 2025 without any gift tax reporting requirements), which can be a useful and simple approach to transfer wealth during your lifetime.
When gifting amounts above this threshold, tax-efficient giving is still possible, but requires proper reporting and utilization of your lifetime estate tax exemption (IRS Form 709 gift tax return).
Under the newly enacted OBBB (OB3), the lifetime estate and gift tax exemption increase to $15,000,000 per person adjusted for inflation beginning January 1, 2026.
With the right guidance from your professional team of advisors, you can avoid surprises and make the most of your giving strategy.
Give Without Expectation
A true gift is something the recipient can use or enjoy as they please, without feeling any obligation or need to reciprocate. The structure you use to make a gift, and the communication that surrounds the gift can impact the experience.
Before making a gift, articulate your desires and your intent internally, then clearly communicate this with the recipient. Whenever possible, relinquish any further control or opinions around the outcomes beyond. Valuing the relationship more than the gift is a great framework to avoid judgement around what choices the recipient makes after a gift is given.
Give Tax Efficiently Through a Giving Fund
Gifting during your lifetime can be deeply fulfilling, and it’s important to balance generosity with long-term financial security in order that you can give freely. Thoughtful planning ensures you can continue enjoying your lifestyle while also helping others. Some ways to accomplish this include:
- Giving a percentage of your income or assets per year
- Giving into a dedicated fund (such as a donor advised fund) that offers tax-benefits at time of gift, and allows you the freedom to make grants to recipient organizations later. Donor Advised Funds can be useful vehicles to receive many different kinds of assets, from cash, appreciated stock, private business interests, appreciated real estate, and more.
Give Tax Efficiently through your Individual Retirement Account (IRA)
Gifting can be a beautiful way to show love and support, and individuals aged 70.5 and older can use funds from an IRA to accomplish generosity goals while avoid paying income tax on distributions. This type of gifting is called Qualified Charitable Distributions (QCD). QCD gifts are limited to $108,000 per year per individual (as of 2025).
Directly Pay Education Costs or Medical Costs to the Provider
Every gift is unique, and opportunities to provide tax-free financial assistance for a loved one’s education or medical costs should not be overlooked. What is most important is the requirement to pay the provider directly. Do not make the gift to the individual who will then pay the education or medical bill, as this would fall under different IRS rules.
- Educations costs can cover tuition only. Books and living expenses do not qualify. Private grade schools, high-schools and colleges/university payments are eligible.
- Medical costs are allowed for treating, diagnosing, preventing and curing disease. Payments for hospital bills, surgeries, prescriptions or medical insurance premiums are eligible.
When these types of payments are made directly to the institution providing the service, no gift tax return filing is required. More information can be found here.
Superfund a 529 Plan* for Education Costs
Funding a 529 Account for education costs is facilitated via annual gift tax exclusion gifts discussed in #1 ($19,000 per recipient per year without gift tax reporting requirements).
529 Superfunding is a strategy that allows you to contribute up to five years’ worth of these contributions at once without incurring gift taxes. This means that an individual can deposit up to $95,000 in 2025 or a married couple can deposit up to $190,000 per year, per beneficiary. Superfunding 529 accounts for descendants can allow individuals to reduce their estate value without using any of their lifetime estate tax exemptions. Then, funds invested inside the 529 account(s) grow tax-deferred (or tax-free if used for appropriate education costs) in the future. SavingForCollege.com provides more rules and tips here.
Coordinate with Long-Term Care Planning
Gifting can be part of a broader strategy that includes healthcare and long-term care planning. By aligning your giving with Medicaid guidelines and other benefits, you can preserve eligibility while supporting loved ones. Under federal Medicaid law, if you transfer certain assets within five years of applying for Medicaid benefits, you may be subject to a transfer penalty. While many transfers within this timeframe do result in the penalty, there are certain transfers that are exempt. ElderLawAnswers.com provides more detail here.
Timing & Valuation Discounts for Maximum Impact
The timing of your gifts, what you gift, and how you gift it can impact the value. Considering market conditions and tax implications can help you make the most of your generosity. Discount for Lack of Marketability and Discount for Lack of Control are the two most common discount types. These discounts can be applied to assets gifted through specific legal structures. Minority interests in privately held businesses, family limited partnerships, limit liability companies and undivided interests in real estate are typical structures that can be gifted with discounts. Utilizing legal and tax advice is essential when implementing complex gift strategies to ensure compliance with the IRS, and professional appraisals are important to support the valuation discounts utilized.
Final Thoughts
Lifetime gifting is a powerful tool for sharing your wealth and values with others. With the right strategy and support from financial, tax, and legal professionals, you can give confidently—knowing your gifts are meaningful, well-planned, and aligned with your goals.
At Exceptional Wealth & Family Office, we are here to guide you – please reach out if you want to dive deeper into any of these approaches which may complement your specific situation.
*The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.
Commonwealth Financial Network® does not provide legal or tax advice. You should consult a legal or tax professional regarding your individual situation.