Estate planning can be uncomfortable to think about. However, a carefully crafted estate plan is one of the greatest gifts you can give your loved ones. You don’t want your family to be left tying up loose ends and grappling with significant estate taxes once you’re gone.
A strong estate plan often involves combining several strategies, including trusts, wills, investments, and strategic gift-giving. If you have significant assets and want to minimize estate tax obligations for your loved ones, you might consider giving gifts ahead of time.
Before doing so, however, it’s important to understand the gift tax and what strategies you may be able to use to limit your federal gift tax liability.
What Is Gift Tax, and How Does It Work?
The gift tax was created to prevent people — especially those with many assets — from escaping estate taxes by giving away all or most of their property while still alive.
Each year, the IRS sets an annual gift tax exclusion limit, which is the dollar amount that triggers the gift tax. For 2025, the gift tax exclusion limit is $19,000. That means you won’t owe gift tax on any transfer of money or property worth $19,000 or less.
This is where strategic gift-splitting becomes important. You could give 10 family members $19,000 each without triggering the gift tax, but if you give one family member $190,000, you would.
Some gifts aren’t taxable, regardless of the amount. The IRS doesn’t tax the following types of gifts:
- Gifts given to your spouse (as long as they’re a U.S. citizen)
- Money given to cover tuition (as long as it’s paid directly to the institution)
- Money given to cover medical expenses (as long as it’s paid directly to the medical facility)
- Donations to IRS-approved charities
- Contributions to political organizations
Because these gifts are exempt from the gift tax, you don’t need to report them to the IRS.
Federal Estate Tax and Gift Tax Limits
Estate tax is different from gift tax. While a gift tax applies to money or property you give away during your lifetime, an estate tax (sometimes colloquially called a “death tax”) applies to money and property you pass on to loved ones after your death.
However, the two are closely related, so federal law sets a lifetime gift and estate tax exemption that applies to both. Currently, you may give up to $13.99 million (including gifts made during your lifetime and money/property willed to loved ones after your death) without incurring gift and estate taxes.
The more money you give (exceeding the annual gift tax exclusion) over your lifetime, the less you can leave tax-free to your loved ones. Estate tax only kicks in once you surpass the $13.99 million limit.
For example, imagine you give someone a single gift of $29,000. When you subtract the annual exclusion of $19,000, that leaves $10,000. Your lifetime exemption would be reduced by $10,000 to $13,980,000.
Texas Estate Tax: What You Need to Know
When it comes to estate planning, understanding federal estate tax laws is important, but so is understanding the overall Texas tax picture. Fortunately, there’s no state-level gift or estate tax, so you only have the federal estate tax to worry about when you’re creating an estate plan.
Notably, Texas doesn’t have an inheritance tax, either. However, if you inherit money from a loved one who lives in a state with an inheritance tax, that state’s inheritance taxes may apply.
Interstate inheritance tax and gift tax laws can be very complex. A lawyer who focuses on estate planning or a general financial advisor can help you determine how much you may owe.
Recent Changes and Current Trends in Estate and Gift Tax Laws
For most people, the $13.99 million exemption is high enough that they can easily leave money to loved ones without worrying about avoiding a taxable estate. However, unless new legislation passes, that exemption will be halved in 2026.
The current estate and gift tax exemption went into effect with the passage of the 2017 Tax Cuts and Jobs Act (TCJA). The TCJA doubled the exemption when it was passed, but that double exemption will expire in 2026.
The Role of Professional Guidance in Estate and Gift Tax Planning
Federal estate tax has the potential to reduce what your loved ones inherit drastically. For estates that exceed the lifetime exemption, tax rates may be as high as 40%.
While consulting a financial advisor can be helpful, the best way to create an effective estate plan is to work with an estate planning attorney.
This is particularly important if you think your estate will exceed the lowered lifetime gift tax exemption. The right attorney can assess your situation and help you develop a strategy to minimize your taxable estate.
Planning Ahead: Tips for Minimizing Gift and Estate Tax Liability
Here are a few estate-planning tips to help you reduce the applicable federal gift and estate tax:
Consider Creating Trusts
Trusts are a valuable estate planning tool, and some types can minimize taxes. Your attorney can help you understand the various types of trusts and which ones may be most advantageous.
Maximize Annual Exclusions
Giving multiple gifts below the annual exclusion amount each year lets you make tax-free gifts without eating into your lifetime exemption.
Be Strategic With Your Gifts
If you want to give a loved one a significant amount of money without incurring gift taxes, consider covering their tuition or medical expenses. As long as you transfer the money directly to the educational or medical institution, you won’t have to pay a gift tax.
Take Advantage of Spousal Giving
You can generally transfer unlimited assets to your spouse tax-free during your lifetime and after your death.
Engage in Charitable Giving
Charitable giving offers dual advantages, allowing you to reduce your taxable estate while also making a positive impact on the world.
Taking Control of Your Gift and Estate Tax Planning
Unless you have a background in tax law, creating a tax-efficient estate plan can be exceedingly difficult.
At Hunter Sargent, PLLC, our goal is to help Texans from all walks of life preserve their wealth and pass it on to the next generation. If you’re thinking about estate planning or need to update your existing estate plan, contact us today to schedule a consultation.