A common question financial advisors hear is, “How can I pass on more of my wealth without losing a significant portion to taxes?” The answer lies in tax-efficient gifting—a strategy that transforms everyday asset transfers into deliberate moves for preserving your family legacy.
In our previous blog, we introduced various methods to safeguard generational wealth. Today, we’re delving deeper into tax-efficient gifting, exploring targeted strategies such as leveraging low-basis shares, establishing robust trusts, and meticulously managing annual exclusion limits. These approaches can help you minimize tax liabilities and preserve more of your wealth, giving your financial legacy the chance to grow and thrive.
Understanding Tax-Efficient Gifting
Tax-efficient gifting is a strategy designed to minimize tax liabilities while transferring wealth to the next generation. Whether you’re considering cash gifts or appreciated assets like stocks or real estate, structuring these gifts properly can help reduce the taxable size of your estate and maximize the financial benefits for your heirs.
One of the foundational elements of tax-efficient gifting is the annual gift tax exclusion. Under current regulations, you can gift up to $19,000 per recipient each year without triggering gift tax implications. For example, a married client can each gift $19,000 to their child for a total of $38,000. If this is an adult child who is married, then the client (made up of 2 individuals) can gift $76K to their adult child’s household without triggering a gift tax return or gift tax implications. By consistently leveraging this annual exclusion, you can gradually transfer wealth while avoiding the complexities of gift tax filings.
The lifetime gift tax exemption provides additional flexibility for larger transfers, allowing you to give away a substantial sum during your lifetime without incurring gift taxes. As of 2025, an individual’s lifetime exemption amount is $13.99 million. Additionally, payments on behalf of others made directly to medical providers or universities do not count against this lifetime exemption or annual exclusion amount.
Leveraging Low-Basis Shares
A particularly effective strategy we touched on in our previous blog involves transferring low-basis shares. If you hold appreciated assets—say, stocks purchased at a low price that have since grown significantly in value—gifting these assets can be a savvy move. When you gift an appreciated asset, your beneficiary inherits your cost basis. This means that if they decide to sell the asset in the future, their capital gains tax will be calculated based on your original purchase price rather than the current market value.
This strategy is especially beneficial when the recipient is in a lower tax bracket. The potential tax savings can be substantial in such cases, as the lower tax rate applies to any future capital gains. Gifting low-basis shares helps manage your taxable estate and educates younger family members on the importance of responsible asset management.
Leveraging High-Basis Shares that Are at a Loss
Similar to leveraging low-basis shares at a gain, there is an opposite approach for shares trading at a loss. For families who have a single remaining family patriarch approaching life expectancy and have shares trading at a loss, consider gifting those shares today to family members who would have inherited them anyway. At death, those unrealized losses go away, so if material losses exist and the family patriarch doesn’t need the assets, giving those shares allows the heirs to sell them without tax consequences and capture a capital gain they can use over their own lifetime.
Trusts and Other Vehicles for Gifting
In addition to direct gifts, trusts offer another layer of sophistication to your gifting strategy. For example, establishing an irrevocable trust can effectively remove assets from your taxable estate while allowing you to dictate the terms and timing of distributions. These trusts can also be structured to utilize annual gift exclusion and lifetime exemptions, enhancing overall tax efficiency.
When gifting appreciated assets, the tax treatment depends on the type of trust. In a grantor trust, the donor retains responsibility for income taxes, but the beneficiary inherits the original cost basis, meaning any future capital gains are taxed at that lower value. Other trusts, like revocable trusts or certain irrevocable trusts, can provide a step-up in basis at the donor’s death, which means beneficiaries avoid capital gains taxes on the appreciation that occurred during the donor’s lifetime.
Some trusts, such as dynasty trusts, help preserve wealth across generations by shielding assets from estate taxes, ensuring the family legacy continues without incurring additional tax burdens. The key is selecting the right trust to align with your goals, minimize taxes, and protect your wealth for future generations.
Maximizing Estate Tax Savings with 529 Plans
For families looking to reduce estate tax liability while supporting future generations, 529 college savings plans offer a tax-efficient gifting strategy. The IRS allows individuals to superfund a 529 plan by contributing up to five years’ worth of annual exclusions at once. In 2025, this means a single donor can contribute up to $95,000 per beneficiary ($190,000 for a married couple) without triggering gift taxes. This front-loading strategy immediately removes assets from the donor’s taxable estate while funding a grandchild’s education in a tax-advantaged way.
A $190,000 contribution can save a family $76,000 in estate taxes ($190,000 × 40% maximum estate tax rate). The savings multiply if there are multiple 529 recipients. Imagine a scenario where a sizable estate, typically subject to estate taxes, has 10 grandchildren. By gifting the maximum amount of $190,000 per grandchild—a total of $1,900,000—the family can save $760,000 in estate taxes. This effectively reduces the net cost of the gift from $1,900,000 to $1,140,000.
Navigating Potential Pitfalls
While the benefits of tax-efficient gifting are clear, it’s essential to approach these strategies with careful planning. Misvaluing assets or inadvertently exceeding annual exclusions can lead to unintended tax consequences. Meticulous record-keeping and a clear understanding of the tax rules are essential to avoid such pitfalls.
Additionally, timing is crucial. The landscape of tax law is subject to change, and what works today might require adjustment in the future. In fact, unless Congress intervenes, the lifetime gift tax exclusion mentioned above is set to decrease significantly in 2026 to approximately $7.2 million for individuals. This reduction would substantially lower the amount of wealth that can be passed on to beneficiaries without incurring taxes. Staying informed about updates in tax legislation—and working closely with a trusted financial advisor—can help ensure that your strategy remains effective and compliant.
Integrating Gifting into Your Overall Estate Plan
Tax-efficient gifting is more than just a tax minimization tool—it’s an integral part of a comprehensive estate planning strategy. By thoughtfully integrating gifting strategies into your broader estate plan, you can reduce your taxable estate and provide your loved ones with a solid foundation for financial success.
At Grunden Financial Advisory, Inc., we pride ourselves on tailoring strategies that align with your unique needs and goals. If you’d like to explore how tax-efficient gifting can enhance your wealth transfer strategy, we invite you to contact us today. Our team is here to provide you with the guidance and expertise necessary to optimize your overall financial plan.
