J—Gift Splitting

For families that are potentially subject to estate taxes, lifetime giving is a very important part of estate planning, and can reduce the ultimate estate tax burden very substantially.1 However, because of increased estate tax exemptions passed into law in recent years, fewer and fewer individuals
have potentially taxable estates.

Property gifted during life has a “carry-over” basis meaning that any gain at the time of the gift passes to the recipient. Whereas, property held until death has a basis “step-up” with the
recipient being assigned a cost basis equal to the date of death fair market value. For most families, the ability to “wash away” gains at death can be more important than transfer tax
considerations.

INDIVIDUAL GIFTS. To illustrate, assume that a donor has money that is not needed for his own support. Under the federal gift tax provisions, an individual may give – under most circumstances – up to $19,000 per person, as indexed in 2025 (projected) for inflation, annually free of gift tax. Thus, with three children the donor could give each of them $19,000 per year. This per-donee exclusion is allowed each and every year, but it is not cumulative (i.e., exclusion unused in any year may not be “carried over” to the following year). In order for the gift to be one that qualifies for the annual exclusion, it must be a present interest gift: the donee must be entitled to its immediate use and enjoyment. If within the year the donor makes only present interest gifts, and gifts do not exceed a total of $19,000 per donee, the donor will not be required to file a gift tax return for that year and – under most circumstances – have no further income, gift, or estate tax consequences from the gift. Likewise, the gift is not included in the donee’s taxable income.