Gifting money or assets to loved ones is a generous way to share your wealth, support family members or help the next generation. But under federal law, some gifts may come with tax implications. If you’re planning to give, it’s important to understand how gift tax rules work—and how to avoid unnecessary taxes through smart planning.
A gift occurs when you transfer money, property or other assets without receiving something of equal value in return. If the value of your gift exceeds a certain threshold, you may be required to report it on IRS Form 709, the federal gift tax return. The tax liability, if any, falls on the giver—not the recipient. While gift tax rates can be as high as 40%, most people never pay this tax due to key exclusions.
Direct gifts—like writing a check—are simple but leave you with no control once the gift is made. For those who want to maintain oversight, irrevocable trusts offer an effective solution. These trusts allow you to remove assets from your taxable estate while setting conditions on how and when beneficiaries access the funds.
However, trust-based gifting involves legal and tax complexities. It’s crucial to consult with a knowledgeable advisor and estate planning attorney to ensure your strategy aligns with your long-term goals.
At Illumination Wealth, we help clients create intentional, tax-efficient gifting strategies that support their legacy and values. Contact us today to explore your options.