Gifting to Family Members

As the holiday season approaches or special occasions arise, many people consider gifting money or assets to their loved ones. Gifting to family members can be a thoughtful way to provide financial support, help with major life expenses, or simply show your care and appreciation. However, it’s important to understand the rules and potential implications of such gifts to ensure compliance with tax regulations and maximize the benefits for both the giver and the recipient.

Gifting to Family Members: The Basics

The Internal Revenue Service has set boundaries on gifting to family members as a way to regulate the distribution of wealth. Anyone contemplating significant gifting to family members should understand these rules.

Annual Gift Tax Exclusion

For 2025, the annual gift tax exclusion is $19,000 per recipient. This means you can gift up to $18,000 to as many individuals as you want without triggering any gift tax reporting requirements. Married couples can combine their exclusions, allowing them to gift up to $38,000 per recipient annually.

Lifetime Gift Tax Exemption

In addition to the annual exclusion, there’s also a lifetime gift tax exemption. For 2025, this exemption is $13.990 million per person. You can give away this amount over your lifetime without having to pay gift taxes, although you will have to file a gift tax return for gifts in excess of the annual exclusion.

Strategies for Gifting to Family Members

Following are some strategies you can use when considering gifting to family members that will help maximize the benefits and minimize potential tax implications.

Spread Gifts Over Time

If you would like to gift more than the annual gift tax exclusion, consider spreading larger gifts over several years. Using the previous example, if you wanted to give $50,000 to a child, you could give $18,000 in one year and the remaining $32,000 the following year.

Utilize Spousal Gifting

Married couples can take advantage of gift splitting, which enables you to give up to $36,000 per recipient annually without triggering gift tax reporting. This strategy, in essence, doubles the amount you can gift tax-free each year.

Direct Payments for Education or Medical Expenses

Payments made directly to educational institutions for tuition or to medical providers for healthcare expenses are not treated as taxable gifts. This way, you can help support family members’ education or health needs without affecting your annual or lifetime gift tax exemptions.

Types of Gifts to Consider

When gifting to family members, there are options beyond cash gifts. Knowing the implications of different types of gifts helps you make informed decisions.

Cash Gifts

Cash gifts are simple and usually do not have any income tax implications for the donee. They do, however, count against your annual and lifetime gift tax exemptions.

Property and Assets

Transferring property or assets, such as real estate or automobiles, is more complicated. The fair market value of the gifts applied against your gift tax exemptions, and may have other tax implications for the donee5.

Financial Assets

Gifting stocks, bonds, or other securities can be a very effective means of transferring wealth. However, one must be cognizant of the potential capital gains tax implications to the recipient.

Tax Consequences of Gifting to Family Members

While gifting can be an extremely useful strategy in wealth transfer, there are key tax consequences to consider from both the giver and recipient’s perspective.

For the Giver

If your gift is in excess of the annual exclusion amount, you’ll then have to file a gift tax return (Form 709). Although you won’t necessarily owe gift tax until your lifetime exemption is breached, it’s extremely significant in order to keep accurate estate planning bookkeeping.

For the Donee

Generally, the recipient of a gift does not pay income tax on the gift. However, if the asset that was gifted generates income in the future (for example interest or dividends), that may be considered taxable income.

Special Considerations When Gifting to Family Members

There are a few special considerations when gifting to family members, including:

Gifting to Spouses

Transfers between spouses who are US Citizens are generally unlimited and considered exempt from gift tax reporting.

Gifting to Minors

When gifting minors, you may consider providing assets in trusts or custodial accounts, so those funds will be managed until the child attains maturity.

Emotional Implications

Apart from the issues relating to finances, one can think of the emotional issues affecting the family due to gifts. Large gifts can generate a sense of indebtedness and also inequality among siblings.

Gifting to family members is a powerful way to provide for your loved ones financially and transfer wealth to them. You can make the most out of your generosity by maximizing your benefits and reducing any potential tax hits by understanding the rules surrounding the gifting of taxes, using methods of strategic gifting, and considering the different types of gifts available.

Remember, though the information here offers a general overview of gifting to family members, the tax laws can be convoluted and subject to alterations. It is always appropriate to consult with a qualified professional tax expert or financial counselor before making major gifts to ensure that you do the best thing in your given situation.

The compassionate team at Antanavage Farbiarz is here to help. Reach out today to learn how our seasoned attorneys can assist you in creating a robust Advanced Health Care Directive tailored to your unique needs. Our family is here for your family – give us a call at (610) 562-2000 or click here to schedule a consultation.

Stay up to date with the latest tips from Antanavage Farbiarz, PLLC by following us on Facebook and LinkedIn.

Skip to content