As estate and gift tax laws continue to evolve, the importance of proactive estate planning cannot be overstated. For some individuals, failing to establish a comprehensive estate plan can lead to a significant portion of their wealth being lost to taxes—up to 40% of an estate could be lost to federal estate tax in the absence of effective planning. If you have children or grandchildren, the financial implications of such a loss could be substantial. To ensure your assets are distributed according to your wishes, it’s critical to take advantage of the estate and gift tax exemptions while they are at historically high levels.
Reduce the Size of Your Estate by Gifting Now
One of the most effective strategies to reduce the size of your taxable estate—and potentially lower estate taxes—is to make gifts now, either outright or through trusts. By doing so, you can transfer wealth to your heirs while reducing the value of your estate that will be subject to estate tax upon your death. Currently, the estate tax exemption is at a historic high, providing individuals with the ability to transfer a substantial amount of wealth to heirs without incurring estate taxes. However, this exemption is not permanent. With potential legislative changes looming, gifting now allows you to secure the current exemption amount before any changes to the tax code could reduce the exemption in the future.
Annual Gift Tax Exclusion
Another valuable tool for reducing your taxable estate is the IRS’s annual gift tax exclusion. In 2025, individuals can gift up to $19,000 per recipient without triggering gift taxes or affecting their estate and gift tax exemption. This annual exclusion allows you to make gifts to family members, friends, or others without worrying about tax implications. By utilizing the annual exclusion year after year, you can incrementally transfer wealth, minimizing your estate’s tax burden and ensuring that more of your assets remain with your loved ones.
Gifting for Education and Medical Expenses
Beyond the standard gift tax exemptions, the IRS permits unlimited tax-free contributions for educational and medical expenses when paid directly to the educational institution or healthcare provider. This means you can support your loved ones’ educational goals or medical needs without worrying about gift taxes. Furthermore, 529 plans, which are designated for educational expenses, offer tax-free growth and withdrawals, allowing you to help fund a child or grandchild’s education while preserving your wealth for future generations.
Plan Now, Benefit Later
With the estate and gift tax exemption set to sunset in the near future, now is the time to act. By making gifts today, whether through outright transfers, contributions to education or medical expenses, or by utilizing annual exclusions, you can reduce the value of your estate and potentially lower the taxes your heirs will face. Establishing a comprehensive gifting strategy now ensures that your wealth is passed down according to your wishes, not the default tax laws.
Estate planning is about taking deliberate action to protect your legacy. The Estate Planning Attorneys at Berliner Cohen, LLP would be happy to guide you through the gifting and estate planning process and provide you with a customized estate plan that fits your needs. Please contact Joseph H. Feldman at (408) 286-5800 or joseph.feldman@berliner.com