When people think about estate planning, they often picture wills and trusts. But one powerful—and sometimes overlooked—strategy is lifetime gifting. Giving assets to loved ones during your lifetime can reduce the size of your taxable estate and help you see your heirs enjoy their inheritance. To do this effectively, you need to understand the annual gift tax exclusion, commonly referred to as the “annual gift limit.”
The annual gift limit is the maximum amount you can give to another person in a calendar year without triggering the federal gift tax or having to file a gift tax return.
For 2025, the Internal Revenue Service (IRS) set the annual gift limit at $18,000 per recipient. This means you can give up to $18,000 to as many individuals as you want in a single year—children, grandchildren, friends, or anyone else—without any tax consequences. If you’re married, you and your spouse can “split” gifts, effectively doubling the limit to $36,000 per recipient.
Every dollar you give away during your lifetime reduces the size of your estate. Since federal estate tax only applies to estates above the lifetime exemption ($13.61 million per person in 2025), gifting can be a strategic way to reduce exposure to estate taxes.
By making annual exclusion gifts, you can gradually pass significant wealth to your heirs over time, without eating into your lifetime exemption or triggering gift taxes. For example, if you have three children and five grandchildren, you could give each of them $18,000 in 2025—that’s $144,000 transferred tax-free in one year.
Many clients appreciate being able to see their loved ones enjoy the gift during their lifetime—whether it’s helping a child buy a home, contributing to a grandchild’s education, or supporting a family member in need.
It’s important to remember that gifts aren’t limited to cash. You can also give securities, real estate interests, or other assets. And gifts made directly to educational institutions for tuition or directly to medical providers for health expenses are not subject to the gift tax limit at all—making them another valuable planning strategy.
If you give more than $18,000 to any one person in 2025, the excess will count against your lifetime exemption. You’ll need to file IRS Form 709 (Gift Tax Return), but you likely won’t owe any tax unless your total lifetime gifts exceed the exemption amount.
The annual gift limit is a simple but powerful tool in estate planning. By making smart use of annual exclusion gifts, you can reduce the size of your taxable estate, transfer wealth efficiently, and provide meaningful support to your loved ones during your lifetime.
An estate planning attorney can help you determine how gifting fits into your overall plan and ensure that your strategy aligns with your long-term financial and family goals.
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