Smart Year-End Gifting: Tax Strategies for Passing Wealth to Family

By Mark Yatros

The holiday season is nearly upon us, so it’s time to make your gift-giving list. While games, household items, and even socks (come on – we've all been there!) are typical picks, you may also be thinking about giving cash or assets to your family. If that's the case, exploring strategies that make your gifts generous and help with your taxes is a good idea.

And gifting before the end of the year doesn't just help those receiving the gifts. It also reduces the size of your estate, which can lower your future estate tax liability. This means you can lock in today's values, ensuring that future growth benefits your heirs without adding to your taxable estate.

Now, let’s look at how you can give generously to benefit your family and your financial situation.

The annual gift tax exclusion

The annual gift tax exclusion is a simple, effective way to share your wealth with your family tax-free. In 2024, you can gift up to $18,000 to each recipient without filing a gift tax return or paying federal gift tax. This approach offers flexibility, allowing you to distribute funds to multiple recipients.

You can extend the gift to any number of children, grandchildren, or other relatives, making it a flexible way to transfer wealth. Each $18,000 gift remains tax-free, making it a powerful tool for transferring wealth over time.

One key benefit of the annual exclusion is that it resets every calendar year. So, you can use this exclusion every year to reduce your taxable estate in a manageable way. Plus, consistent gifts help your family while you're still here to see the money benefit them.

For married couples, the benefits are even better. Spouses can take advantage of gift splitting, which allows each partner to give $18,000 to the same person. So, together, you can give $36,000 to each recipient in a single year without facing gift tax consequences. Over time, this can add up, especially if you're looking to benefit several family members at once.

Lifetime gift and estate tax exemption

For larger estates, the lifetime gift and estate tax exemption is vital for passing on wealth. In 2024, you can pass along up to $13.61 million in assets over your lifetime without paying federal estate or gift taxes. This exemption is valuable for high-net-worth individuals because it helps minimize taxes when transferring wealth to your family.

However, the clock may be ticking on this generous exemption. Current tax laws are set to change in 2026, potentially slashing the lifetime exemption amount in half. That makes now a great time to consider using your exemption while it’s at its highest. By acting soon, you can lock in today’s limits and reduce the impact of future tax law changes.

Direct payments for medical and educational expenses

Another tax-efficient way to support your family is to pay their medical and educational expenses. These payments aren't considered gifts, so your annual gift tax exclusion isn't affected. You can pay medical bills or tuition costs directly to the provider or school and won't incur any taxes.

You can also combine this with annual exclusion gifts. This lets you provide the most help while minimizing taxes. For example, you can gift $18,000 to a loved one and pay their tuition, all without worrying about triggering gift taxes.

Establishing and contributing to trusts

Trusts are a great way to transfer wealth in a more controlled and tax-efficient manner. For example, irrevocable trusts remove assets from your estate, lower estate taxes, and possibly keep your estate out of probate. They are a valuable tool for transferring wealth, especially for larger estates.

Grantor Retained Annuity Trusts (GRATs) are another option that can reduce gift tax exposure. With a GRAT, you put appreciating assets into the trust and receive annuity payments over time. Then, you pass the remaining assets to your beneficiaries. If the assets grow more than the IRS's assumed rate of return, your heirs get the excess without incurring additional gift taxes.

Charitable giving as part of family wealth transfer

With donor-advised funds (DAFs), you can combine family giving with philanthropic goals. This offers flexibility and tax benefits. When you put money into a DAF, you get a tax deduction, which helps reduce your tax bill for the year you donate. 

One bonus of a DAF is that, while you receive the tax benefit right away, you don't have to decide immediately where the money will go. This allows you to take your time and involve your family in choosing the causes that mean the most to all of you.

Another advantage of DAFs is that the funds in the account can grow tax-free. This means your charitable dollars can increase over time, allowing you to make an even more significant impact when you’re ready to distribute the funds.

Charitable lead trusts (CLTs) offer another way to blend philanthropy with estate planning. When you set up a CLT, a designated charity receives income from the trust for a set period, often several years. After that period, the remaining assets in the trust are passed on to your heirs. This has two benefits. First, your charity gets the needed support. Second, your beneficiaries often get the remaining assets at a lower estate tax cost.

The CLT is particularly appealing because it allows you to make a substantial charitable impact while still ensuring your family benefits in the long run. Since the assets grow within the trust over time, you can pass the appreciation on to your heirs. Plus, the gains are often free from significant estate taxes. It’s a win-win approach: You can leave a legacy to your family and the causes you care about.

Acting before year-end

As the year ends, it’s essential to make the most of the current tax exemptions while they’re still available. Tax laws can change, and waiting could mean missing out on valuable opportunities to transfer wealth tax-efficiently. By acting now, you can take advantage of the annual gift tax exclusion, the lifetime exemption, and other strategies before any potential tax law adjustments take effect.

But, let’s face it, all of this can be confusing. So, it’s a good idea to consult with a financial advisor or tax professional before making any moves. My colleagues and I at Allegiant Wealth Strategies are happy to meet with you for a free, no-strings-attached consultation. Please contact us here or call (269) 218-2100 for an appointment.

This material has been provided for general informational purposes only and does not constitute either tax or legal advice. Although we go to great lengths to ensure our information is accurate and useful, we recommend you consult a tax preparer, professional tax advisor, or lawyer.

Allegiant Wealth Strategies offers securities and advisory services through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Allegiant Wealth Strategies has offices in Battle Creek and Portage, Michigan, from which we serve Calhoun County, Kalamazoo County, and Kent County (Grand Rapids). The Allegiant Wealth Strategies team offers no-obligation financial planning consultations; call 269-218-2100 or contact us here.