As the year comes to a close, it’s a great time to review one of the simplest and most effective estate planning tools available: the Annual Gift Tax Exclusion.
What Is the Annual Gift Tax Exclusion?
The Annual Gift Tax Exclusion allows you to give up to $19,000 per person in 2025 without making a taxable gift. This amount increases periodically with inflation in $1,000 increments. Married couples can choose to “split” gifts and give up to $38,000 per recipient.
It’s important to remember that the annual exclusion is a “use it or lose it” opportunity. If you don’t make gifts before year-end, you can’t carry any unused amount forward to future years.
What Happens If You Give More Than the Limit?
Gifts above the $19,000 annual exclusion are considered taxable gifts, but that doesn’t mean you’ll owe taxes right away. Instead, the excess amount simply reduces your lifetime gift and estate tax exemption, which is $13.99 million per person in 2025.
Why This Matters
While $19,000 may not sound like much on its own, it can add up quickly—especially when multiplied across several family members or loved ones. Over time, these gifts can meaningfully reduce the size of your taxable estate, helping preserve more wealth for future generations.
Two Key Exceptions
Certain types of gifts are not subject to the annual limit and can be given in unlimited amounts if paid directly to the provider:
• Qualified education expenses (such as tuition paid directly to a school)
• Qualified medical expenses (such as payments made directly to a medical provider)
The Bottom Line
The Annual Gift Tax Exclusion is a simple yet powerful way to transfer wealth tax-efficiently. If you haven’t yet used your 2025 exclusion, consider making those gifts before December 31 to take full advantage of this opportunity.
