Estate and gift tax planning is one of the most effective ways to protect your assets, reduce tax burdens, and make sure your wealth is passed on according to your wishes. Whether you’re preparing for the future or helping loved ones secure family wealth, you need to understand how these taxes work, especially with upcoming changes to U.S. tax laws.
Without proper tax planning, your estate could face significant tax liabilities, delays in distribution, or legal complications. However, the good news is that with right strategies, you can legally minimize these taxes while securing your family’s financial future. It’s even better when you work with estate and tax professionals who can help you avoid tax troubles while making sure your tax planning aligns with your overall estate plan.
At Victory Tax Lawyers, we have saved our clients more than $85 million. We negotiate with the IRS on a daily basis to help our clients find tax relief, resolve IRS tax levies and liens, and get through stressful tax audits. If you need tax-related legal help, contact us to book your free attorney consultation today.
In this blog, we’ll explain what estate and gift taxes are, highlight their differences, and walk you through the key benefits and strategies for effective planning. You’ll also learn about common mistakes to avoid, how professionals can help, and how recent tax law changes may affect your current or future estate plans.
What Is Estate Tax?
Estate tax is a tax that is imposed on a person’s assets when they pass away. When an individual passes on, everything they own, whether cash, real estate, stocks, or other assets, are calculated to determine the value of their estate. If the market value of the estate is greater than the exemption amount, then the estate is taxed on the amount above the exemption limit before the estate is passed on to heirs or beneficiaries. However, some assets, like those left to a spouse or charity, are usually exempt. Note that estate tax is paid out of the deceased person’s asset, not by the people who inherit them.
What Is Gift Tax?
Gift tax is a tax on money or property that you gift to someone while you are still alive. Any money, property, or any valuable thing you give to someone without any expectation for something in return can qualify as a gift. Many countries stipulate an amount you can give each year to someone without paying gift tax.
For example, in the U.S. for 2024, you can gift up to $18,000 per person per year. However, if you give more than the yearly gift tax exemption, it may still count toward your lifetime gift tax exemption, which is about $13.61 million in the U.S. for 2024. Gift tax is usually paid by the giver and NOT the receiver.
Differences Between Estate and Gift Tax
Ranging from the purpose and timing to who pays and the exemption limits, estate tax and gift tax differ in various ways. As a taxpayer, understanding these differences will help you make better tax planning and avoid issues with the IRS.
Based on The Purpose of the Tax, both taxes seem related, but their primary goals are different. The goal of estate tax is to prevent the accumulation of untaxed wealth passed between generations. On the other hand, gift tax aims to prevent individuals from avoiding estate tax by giving away all or most of their wealth before they die. Both taxes combine to make sure that large transfers of wealth, whether during life or after death, are subject to taxation under federal law.
Based on Who Pays the Tax, estate tax is paid by the estate of the deceased while gift tax is paid by the donor of the gift while they’re alive. If the gift is large enough to require tax reporting, it’s the giver who must file a gift tax return and potentially pay taxes, though most people never reach the taxable limit.
Based on The Timing of Tax Payment, estate tax takes effect after a person dies. It’s imposed on the value of their total estate before they are transferred to their heirs or beneficiaries. On the other hand, the donor of a gift pays the gift tax during their lifetime.
Based on Exemptions, both estate and gift taxes come with exemptions that allow people to transfer a certain amount of wealth without paying taxes. For estate tax in the U.S. as of 2024, the lifetime exemption is about $13.61 million per person. The implication is that you won’t owe any federal estate tax if your estate is worth less than the exemption amount.
For gift tax, the annual gift tax exclusion limit is $18,000 per person for each year. If you gift above this amount, it it will count against the lifetime exemption amount, which is shared with estate tax. This means that large gifts you give during your lifetime reduce the amount you can pass on tax-free at death.
Benefits of Estate and Gift Tax Planning
There are a lot of ways you can benefit from estate and gift tax planning, especially if you or your family have significant assets. Through proper tax planning, you can reduce tax burdens, protect your wealth, and be sure your assets are passed on to your heirs according to your wish. Let’s look at some reasons why estate and gift tax planning is necessary:
- Minimize Tax Liability – By using strategies such as annual gift exclusions, lifetime exemptions, and trusts, you can significantly lower the taxable value of your estate. By doing so, more of your wealth goes to your beneficiaries rather than the government in taxes.
- Preserve Family Wealth – Without proper tax planning, you’re likely to lose large portions of an estate to taxes, legal fees, or delays in probate. But by organizing and distributing assets efficiently, you see to it that your loved ones receive the maximum benefit from your estate.
- Transfer Assets Smoothly – Through estate and gift tax planning, you get to clearly define who will receive what in your estate, thereby reducing the chances of disputes among your family members. As you document and legally protect your wishes with tools like wills, trusts, and beneficiary designations, your asset transfers become faster and without complications.
- Provide Financial Security for Loved Ones – Asset and wealth transfer is one of the best ways to create a financial future for your children, spouse, and other dependents. If you establish a proper tax planning for your estate and gifts, you won’t have to worry so much about the financial state of your loved ones in the future.
- Allow Charitable Giving – For those who care about philanthropy, gift and estate tax planning can help you maximize your charitable contributions while also reducing your taxable estate. Charitable trusts, foundations, or direct gifts to qualified organizations can support causes you care about and offer significant tax benefits.
- Reduce Probate Costs and Delays – Probate is the legal process involved in settling an estate. The process can be time-consuming, expensive, and public. But if you plan ahead of time, you can leverage tools like revocable living trusts to minimize probate and allow for a more private and efficient distribution of assets.
- Make Business Succession More Efficient – Planning gift or estate taxes is not all about individual or family assets. It can also help you decide who will take over your business, how they’ll do it, and what resources they’ll have, all while minimizing tax burdens for your heirs and the business itself.
9 Key Estate and Gift Tax Planning Strategies
There are various estate planning strategies that can help you reduce estate and gift tax and pass on your wealth without much hassle. Here, we’ve listed nine of such strategies and how they work:
#1. Annual Gift Tax Exclusion
The annual gift tax exclusion allows you to give money or assets to others without paying gift tax. In the U.S., you can give up to $18,000 per recipient for each year. Married couples can combine this and give $36,000 per recipient. These gifts do not count against your lifetime exemption, making them a great way to gradually reduce your taxable estate. Examples of gifts that qualify include cash gifts, tuition payments, medical expenses, vacation expenses, etc.
#2. Lifetime Gift and Estate Tax Exemption
You can give away up to $13.61 million during your lifetime without paying federal estate or gift tax. Any gifts above the annual exclusion reduce this lifetime exemption. Therefore, with proper tax planning, you can track and use this exemption efficiently, either during your life or at death.
#3. Irrevocable Trusts
Once you place an asset in the trust, you no longer own it. So with an irrevocable trust, you can move assets out of your estate, reducing estate taxes. For example, the Irrevocable Life Insurance Trusts (ILITs) keeps life insurance payouts out of your estate. The Charitable Remainder Trusts (CRTs) lets you donate assets to a charity while receiving income from those assets during your lifetime. This reduces both your taxable estate and income tax and provides a charitable deduction.
The Grantor Retained Annuity Trusts (GRATs) allows you to transfer appreciating assets to heirs at a reduced gift tax cost. With GRATs, you retain an annuity payment for a set period, and any remaining assets are transferred to heirs at a minimal tax cost.
#4. Revocable Living Trust
Unlike the irrevocable trust, a revocable living trust does not offer tax savings. However, it helps make sure you transfer your assets to your heirs without going through probate. That way, your estate is distributed privately and more quickly. In addition, you can retain control over assets in a revocable living trust during your lifetime, and you can amend or dissolve the trust if necessary.
#5. Spousal Transfers
Due to unlimited marital deduction, transfer of assets between spouses in the U.S is generally tax-free. This means that, provided that your spouse is a U.S citizen, you can give them an unlimited worth of assets without paying estate or gift taxes. The spousal transfer strategy is helpful because when one spouse passes away, the surviving spouse can inherit the deceased spouse’s unused lifetime exemption through portability, further maximizing the tax-free transfer of wealth.
#6. Portability of Unused Spousal Exemption
The U.S tax laws allow the surviving spouse to “port” the unused portion of the exemption if one spouse passes away and did not use up their entire estate tax exemption. Through this means, the surviving spouse can pass on up to double the estate tax exemption without paying estate tax, which can be particularly beneficial for high-net-worth couples. The portability provision ascertains that the full exemption is used, not minding which spouse’s estate it comes from, providing a larger tax-free transfer of assets.
#7. Charitable Giving
If you love charity, then it’s a win-win for you. With charitable giving, you get to reduce both estate and gift taxes, while supporting causes that are important to you. You can achieve this by leaving a portion of your estate to charity, which reduces the taxable value of your estate. Alternatively, you can leverage a Charitable Remainder Trust as we discussed earlier. You can also use Donor-Advised Funds (DAFs), which allows you to make charitable contributions, receive an immediate tax deduction, and then distribute funds to your preferred charities over time.
#8. 529 College Savings Plans
A 529 plan is a tax-advantaged account that help families save up money for college. When you make contributions to a 529 plan, they’re considered gifts. What makes it interesting is that you can front-load the plan by contributing up to five years’ worth of gifts without incurring gift taxes. Although the contributions count against your lifetime gift tax exemption, they don’t incur gift tax if properly structured. You’ll find this strategy especially useful if you’re looking to support your children’s or grandchildren’s education while also reducing your taxable estate.
#9. Family Limited Partnerships (FLPs)
The Family Limited Partnership (FLP) allows you to legally transfer assets to your heir at a discounted value. The assets can be real estate or a family business. In an FLP, the parents is known as the senior generation while the children are referred to as the junior generation. The way it works is, the senior generation retains control as general partners while the junior generation receives limited partnership interests. The value of these limited interests is typically discounted due to factors like lack of control and marketability.
Common Mistakes to Avoid in Estate and Gift Tax Planning
Planning estate and gift tax is great, but there are certain mistakes that can render it ineffective. Avoiding these mistakes can help you create a solid, tax-efficient estate plan that truly reflects your intentions and protects your legacy:
- Failing to Create an Estate Plan – Some people assume that creating an estate plan is only for the wealthy, and that’s not true. No matter how big or small your estate is, having a basic will, trust, and power of attorney can make a huge difference in how much tax you pay and how the wealth is shared when you’re no more.
- Not Using the Annual Gift Tax Exclusion – If you don’t take advantage of the annual gift tax exclusion, you’re missing out on one of the easiest ways to reduce your taxable estate and shift assets to your loved ones.
- Overlooking the Lifetime Exemption Limit – When you give above the annual exclusion, it counts against your lifetime exemption. If you’re not tracking these gifts properly, you could accidentally use up your exemption without realizing it, or even exceed it and face unexpected taxable gift. That’s why you should always file the appropriate IRS Form 709 for large gifts and maintain clear records.
- Waiting Too Long to Transfer Assets – Timing is important for an effective estate planning. Starting early allows you to gift assets when their value is lower and use trusts to capture future appreciation outside your estate. On the contrary, if you wait until late in life to transfer assets, they may have appreciated significantly in value, resulting in higher gift or estate taxes.
- Improper Use of Trusts – Inasmuch as trusts are powerful tools, you must be sure to set up and manage them correctly. Failing to follow the legal and tax requirements of the trust can lead to unintended consequences. For example, if you set up an irrevocable trust but still retain too much control over the assets, the IRS may consider the assets part of your estate.
- Failing to Update Your Plan – Outdated beneficiary designations or wills can cause disputes or unintended distributions. Therefore, your plan should reflect your current family situation and financial goals. For example, life events like marriage, divorce, birth of children or grandchildren, death of a beneficiary, or significant changes in asset value should trigger a review of your estate plan.
- Ignoring State-Level Taxes – Sometimes, it’s easy to focus on federal tax and forget that many states have their own estate or inheritance taxes, often with much lower exemption thresholds. If you live or own property in a state with its own tax laws, you need to plan accordingly to avoid unexpected tax bills for your heirs.
- Not Working with Professionals – There are many legal, tax, and financial considerations involved in gift and estate tax planning. Don’t try to do it yourself; you may end up making mistakes that can be costly or irreversible. It’s recommended to seek professional help from a tax attorney, legal advisor, or estate planning lawyer to be sure your plan complies with the laws, is efficient, and aligns with your goals.
How Professionals Can Assist in Estate and Gift Tax Planning
Gift and estate tax planning involves complex legal, financial, and tax issues that can have long-term consequences for you and your heirs. That’s why you need to work with qualified professionals to creating a well-structured, effective plan.
An estate planning attorney is responsible for drafting key legal documents such as wills, trusts, powers of attorney, and healthcare directives. They understand how to incorporate tax-saving strategies into legal tools like irrevocable trusts, charitable trusts, and business succession plans. They also help you navigate state-specific laws, probate requirements, and protect your plan from legal challenges.
On the other hand, Certified Public Accountants (CPAs) and tax advisors calculate potential estate and gift taxes, help you track lifetime exemption usage, and make sure that gift tax returns (Form 709) and estate tax returns (IRS Form 706) are accurately filed. Meanwhile, financial advisors help align your estate and gift planning with your overall financial goals, including retirement, investment growth, and income needs. They also coordinate with attorneys and tax professionals to make sure every aspect of your plan is integrated.
How Recent Tax Law Changes May Impact Planning
Recent and upcoming changes to U.S. tax laws may significantly affect estate and gift tax planning strategies, especially for high-net-worth individuals. You need to understand these changes so you can adjust your plan to maximize the provisions and avoid unexpected tax consequences.
One of the most important upcoming changes is the Sunset of the Higher Lifetime Exemption. This refers to the scheduled reduction of the federal lifetime gift and estate tax exemption. Under the Tax Cuts and Jobs Act (TCJA) of 2017, the exemption amount was temporarily doubled. In 2024, the exemption is $13.61 million per person, but unless Congress extends this provision, it will revert to approximately $6–7 million per person in 2026.
However, the IRS has clarified that there will be no “clawback” of gifts made using the temporarily higher exemption, even if it drops in 2026. This means that gifts made before the exemption is reduced will still be honored at the higher level. Therefore, if you expect your estate to exceed the future lower exemption, it may be wise to make large gifts now to “lock in” the higher exemption. This is known as “use it or lose it” planning.
In summary, it’s better to act early, particularly before the exemption drops, especially for those with larger estates. Additionally, we recommend regular reviews with an estate planning attorney or tax advisor to ascertain that your plan remains effective and tax-efficient.
Get Professional Guidance for Estate and Gift Tax Planning
You can save a significant amount of money on taxes if you take the right steps to plan for estate and gift taxes. If you’re married, take advantage of legal provisions such as spousal transfers and portability of unused spousal exemption to increase your exemption limit, secure your family wealth. Other strategies such as revocable trusts can also help you transfer the estate to your heirs as smoothly as possible without probate. We highly recommend you to work with a tax lawyer and other relevant professionals to avoid legal complications in the process.
At Victory Tax Lawyers, we specialize in handling complex tax issues, including IRS audits, back taxes, and litigation. We uphold strict confidentiality standards when we take up any case, protecting our clients’ private information. Schedule a free consultation today and let our tax attorneys help you take control of your tax situation.
