Recent changes in federal tax law have reduced estate tax concerns for many families. With historically high federal gift and estate tax exemptions now made permanent, a substantial number of individuals may be less likely to face federal estate taxes at death under current law.

As a result, some people assume that lifetime gifting is no longer necessary. However, estate planning decisions are rarely driven by taxes alone. In many cases, lifetime gifting can still serve important planning, family, and legacy objectives when evaluated as part of a broader financial strategy.

Understanding today’s estate and gift tax environment

Under current law, individuals and married couples may transfer substantial assets without incurring federal estate tax. For 2026, the U.S. federal estate and gift tax exemption, indexed for inflation, is $15 million per individual ($30 million for married couples), subject to future legislative or regulatory changes. However, state-level estate or inheritance taxes might still apply, depending on your state.

In addition, the federal annual gift tax exclusion remains unchanged from 2025 levels at $19,000 per recipient ($38,000 for married couples splitting gifts). Gifts within these limits generally do not require the filing of a gift tax return and allow individuals to transfer assets annually without using lifetime exemption amounts. Certain payments made directly to educational institutions or medical providers for another person’s education or medical expenses may also qualify for special tax treatment, subject to IRS requirements.

While these rules may reduce estate tax exposure for many households, they do not eliminate the need for thoughtful planning. Decisions around gifting should consider income taxes, long-term financial security, and personal goals.

How assets are taxed matters

It’s important to understand how assets are taxed when they are transferred. Assets passed at death generally receive a ‘step-up’ in cost basis to fair market value at the time of death under current law. This adjustment may reduce or eliminate capital gains taxes if heirs later sell the assets. Assets gifted during the owner’s lifetime typically retain the original cost basis, which may result in capital gains taxes for the recipient upon sale.

As a result, gifting appreciated assets during one’s lifetime may not always be appropriate and should be evaluated based on individual circumstances. Evaluating the type of asset, its expected future growth, and the recipient’s tax situation is essential before making a gifting decision.

Situations where lifetime gifting may be considered

In many cases, lifetime gifting may align well with an individual or family’s broader planning goals. In certain situations, gifting assets to family members in lower income tax brackets may reduce overall family tax exposure if those assets are sold. Lifetime gifts may also be used to support education expenses, healthcare needs, or other family priorities.

These strategies are highly dependent on individual circumstances and should be evaluated carefully in coordination with a qualified tax or estate planning professional.

Additional considerations when making lifetime gifts

Many individuals choose to make lifetime gifts for reasons unrelated to taxes. Gifting during life may allow individuals to provide meaningful support to loved ones, observe the impact of their generosity, and address needs as they arise rather than deferring assistance to the future.

In some cases, structured gifting through trusts may be used to help manage how and when assets are distributed, depending on the grantor’s objectives. Trusts can be designed to provide oversight, encourage responsible use of assets, or address specific family concerns, depending on the goals of the grantor.

A thoughtful, integrated approach

Lifetime gifting is not a one-size-fits-all solution. Even in an environment with favorable estate tax rules, gifting decisions should be made in the context of long-term financial security, cash flow needs, tax considerations, and family dynamics. Consult with your financial, tax, and legal professionals for guidance on strategies that seek to minimize tax liability and transfer wealth efficiently.

At Return on Life^® Wealth Partners, effective wealth planning focuses on aligning financial decisions with personal values and long-term objectives. Lifetime gifting may be one component of that process, but it should always be evaluated as part of a comprehensive plan.

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Important Disclosures

This material is provided for informational and educational purposes only and does not constitute investment advice, legal advice, or tax advice. The information contained herein is general in nature and may not be applicable to all individuals or situations.

Tax laws and regulations are subject to change, and their application may vary based on individual circumstances. Individuals should consult with qualified tax, legal, or financial professionals regarding their specific situation before making any financial decisions.

Investing involves risk, including the potential loss of principal. No strategy can assure success or protect against loss. Past performance is not indicative of future results.

Return on Life Wealth Partners does not provide legal or tax advice. Any discussion of tax strategies is not intended to be used, and cannot be used, for the purpose of avoiding tax penalties.

Investment advisory services offered through Planned Financial Services, LLC, dba Return on Life^® Wealth Partners, an SEC-registered investment adviser.
Investment advisory services offered through Planned Financial Services, LLC, dba Return on Life® Wealth Partners, an SEC-registered investment adviser.

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