Making a Gift This Year? Some Key Questions to Consider
Gifting sounds pretty simple, but there are many ways to do it, and several tax ramifications to be aware of as well.

With any potential change in administration, wealth creation and preservation are hot topics of conversation. But this year, there’s one in particular that’s top of mind: the federal gift and estate tax exemption.
The Tax Cuts and Jobs Act significantly increased the lifetime gift, estate and generation-skipping tax exemption to $11.58 million per individual ($23.16 million per couple). The expansion was never designed to be permanent; the exemption is set to expire at the end of 2025. However, the possibility of a “blue wave” this election raises the likelihood that the expiration timeline could become significantly shortened, ending as early as 2021.
Suddenly, wealthy families are faced with the prospect of possibly losing an opportunity of transferring wealth out of their estate and saving on future estate taxes earlier than anticipated. The timeline may shorten to mere months, instead of the years they had originally planned for.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Regardless of whether a gift is made this year or down the road, here are some important questions to consider.
Can I afford to give my money away?
For couples with large taxable estates, gifting assets and removing future appreciation could yield substantial tax savings for their heirs. However, just because someone has the means to make a large gift doesn’t necessarily mean that it’s the right move: “Estate planning oneself into poverty” can be a real risk. Sometimes, families are so eager to take advantage of the tax benefits that they underestimate their own cost of living down the road and/or how long they’ll need their assets for.
First, it is important to assess if the grantor has sufficient assets to maintain their desired lifestyle. Then, consider how much can be passed without negatively impacting goals and lifestyle choices.
When should I gift?
A question grantors grapple with is whether they should give away assets during their lifetime or at their death. Those who choose to gift while they’re alive often do so, not only to reduce their estate, but also to share in the joy in seeing the impact it makes in the lives of receivers.
Others prefer to gift after death for the security of having the assets on hand should they be needed. Gifting after death also allows for more time to prepare loved ones for the responsibility that comes along with inheriting wealth.
What are some ways to structure my gift? Should I put ‘guardrails’ around it?
There are numerous ways of distributing assets, and what works for one family isn’t necessarily the best option for another. As a reminder, any transfer is gift tax-free up to the annual exclusion amount ($15,000 per person per donor for 2020). Any gift over this amount will count against the donor’s lifetime exemption amount. Once that lifetime exemption is exhausted, the gift will be subject to gift tax.
Outright cash gifts
While this is likely the most uncomplicated way of gifting, for families of significant wealth, this approach could have some drawbacks related to the ability and experience receivers have to manage money, outside risks such as a spouse or high-risk professions, and demotivating recipients to live off their inheritance rather than becoming productive on their own. Given this, distributing large amounts of money, especially at a relatively young age, is generally discouraged.
Trusts
Trusts are often used for larger gifts to provide for beneficiaries while using guardrails as restrictive or flexible as the grantor wishes, such as the following to protect the assets:
- Distributing trust assets in stages: When the beneficiary reaches a certain age or achieves a specific goal, they receive an outright distribution. The advantage of this is that it allows heirs to “test the waters” in managing their wealth without putting all their inheritance at risk at once.
- Leaving assets in a discretionary lifetime trust: This option would maintain the assets in a trust for the beneficiary’s entire lifetime. Drafted properly, this offers a high level of protection from divorcing spouses, lawsuits, bad decisions and outside influences. In addition, this could allow grantors to create a lasting family legacy for many generations. The downside of this is that the beneficiary could get frustrated about not having access to wealth easily and having to rely on a trustee’s discretion to make distributions. Clear instructions by the grantor to the trustee can help alleviate some of this.
Gifts for education or medical expenses
Direct payments for education (such as college tuition) or for medical expenses have no gift tax consequences.
Educational gifts can also be made by funding a 529 plan. While there are no contribution limits for a 529 plan, gifts over the annual exclusion amount can have gift tax consequences or count against the lifetime exemption. There is also the option of making a larger tax-free gift to a 529 plan: You can pre-fund an account up to $75,000 and it will receive the same tax treatment as if it was gifted in $15,000 increments over five years.
Uniform Trust to Minors Act (UTMA) and Uniform Gifts to Minors Act(UGMA)
These custodial accounts are generally less restrictive than trusts and allow minor beneficiaries access to funds at age a specific age depending on state of residence.
How should I talk to my family about my gifting decision?
Inheritance is one of the few types of gifts that is generally not best left as a surprise. Families that keep beneficiaries in the dark about inheritance may cause many challenges down the road. Effective communication is essential — not necessarily about the amounts involved, but rather to make the intent and expectations of the grantor known. A financial adviser can be key in fostering these difficult conversations to ensure that beneficiaries are prepared to receive their gifts and be good stewards of family wealth.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
As a Senior Wealth Adviser at The Colony Group, Indrika Arnold provides clients with financial planning services while helping the firm develop and refine Family Office services. She is a financial professional with 15 years of experience. Indrika serves ultra-high net worth individuals and families, and she focuses on all areas of planning. She has a particular interest in helping to prepare the next generation to be responsible stewards of their inherited wealth.
-
Retire in Costa Rica With These Three Tax Benefits
Retirement Taxes Costa Rica may be a good place for retirement if you like the low cost of living and savings for your heirs.
By Kate Schubel Published
-
Five Ways to Ease Caregiver Stress
Caregiver stress is real. Here are five techniques to protect your health and happiness while caring for a loved one.
By MP Dunleavey Published
-
Financial Strategies Borrowed From the Big Game's Playbook
Like the best football teams, you can win at financial planning by executing a strategy, making halftime adjustments and staying focused on the ultimate prize.
By Frank J. Legan Published
-
Three Ways to Plan Now for a Social Security Shortfall Later
The outlook for Social Security is gloomy, but you can save now to protect against benefit cuts later. If the cuts don't happen, you'll still be better off.
By Tyler Jones Published
-
Extra Cash? Should You Pay Off Debt or Invest?
Depending on your financial situation, you might benefit from paying off debt, investing or both. Here are some things to consider before deciding.
By Anthony Martin Published
-
The Future of 1031 Exchanges Under Trump Looks Bright
As a real estate investor himself, President Trump appears poised to preserve the tax-deferring power of this strategy. But you still must follow the rules.
By Edward E. Fernandez Published
-
Gambling vs Investing: How to Tell the Difference
It's easy to get caught up in the excitement of placing a bet on the Big Game, but beware of letting that emotion drive your investing decisions.
By James Martielli, CFA®, CAIA® Published
-
Empowering Widows: Five Goals for Financial Security in 2025
Tackling these strategies one at a time, whether it's updating estate planning or reassessing investments, can help put you on track for financial stability.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
Private Credit: Coming Soon to a Portfolio Near You
Private credit could be a good source of diversification for sophisticated investors, but beware of the risks.
By Blaine Townsend, CIMC®, CIMA® Published
-
What Is Insurance Good For? Let Us Count the Ways
You might resent having to pay premiums, but when disaster or just a minor fender-bender happens, you'll be happy you have the financial backup.
By Karl Susman, CPCU, LUTCF, CIC, CSFP, CFS, CPIA, AAI-M, PLCS Published