How Lifetime Gifting Fits Into Estate Tax Planning
Lifetime gifting is a useful estate planning tool that lets you transfer property, assets, and money to your loved ones and beneficiaries while you are still alive, rather than after you pass away. Gifting assets during your lifetime removes them from your taxable estate and can reduce your heirs' tax burden during estate administration.
However, estate gifting is subject to strict state and federal regulations, and it’s important to understand how gifting will impact your taxable estate and affect tax obligations for your gifting recipients.
At Zapolis and Associates PC, our attorneys have years of combined experience helping individuals implement lifetime gifting strategies in their estate plans to minimize tax exposure. Lifetime gifting should help your estate, not hinder it. Contact us today to schedule a consultation. Located in Mokena, Illinois, we serve clients throughout the Chicagoland area, including Will County, Kankakee County, and Cook County.
Gifting Strategies That Can Affect Estate Tax Planning
Many people assume that gifting assets to a loved one, a named beneficiary, or another person will be subject to taxation. However, under federal law, gifts that fall under a specific threshold are exempt from taxation. According to Charles Schwab, utilizing the annual gift tax exclusion, the lifetime gift and estate tax exemption, and certain direct payments allow for tax-free gifting of assets during your lifetime.
However, it’s important to consider the type of assets you want to gift. Some gifts can grow in value, which can reduce your taxable estate, but can increase tax burdens for your recipients. Therefore, assets with high appreciation may be better include as part of your formal estate whereas money and gifts with little to no appreciation may be better to include in lifetime gifting strategies, so long as they fall within the boundaries of federal gift tax regulations.
Annual Gift Tax Exclusion
Set every year by the IRS, the annual gift tax exclusion allows you to gift property, assets, or money to any number of individuals up to the exclusion limit. For 2026, the exclusion limit is $19,000 per person or $38,000 for spouses who split a gift. Under the annual gift tax exclusion, you will not incur a tax penalty, the recipient of your gift will not owe taxes, and neither party will need to report the gift to the IRS.
If you gift assets or property over the $19,000 limit, you will need to report it to the IRS using Form 709. Additionally, any gifts that come from a foreign source will also need to be reported.
Federal Gift and Estate Tax Exemption
The gift and estate tax exemption refers to the amount of your estate that you can transfer to your heirs and beneficiaries upon your death without incurring tax penalties. Under the One Big Beautiful Bill Act (OBBBA), the current federal exemption has increased to $15 million from $13.99 million in 2025. For married couples, the exemption limit is $30 million.
This exemption limit is not in addition to the $19,000 annual gift tax exclusion. Instead, any gifts you grant during your lifetime will reduce the $15 million exemption limit for your estate at the time of your passing. Any transfers or gifts made over the $15 million limit will be subject to a 40% tax rate.
Direct Payments
In some cases, direct payments that you make to a loved one or a family member for qualifying expenses may be exempt from reporting requirements and gift taxes. This is outlined under 26 U.S. Code 2503(E), and qualifying payments must take the form of tuition to an educational organization, payments to a person who provides medical care, or charitable donations to a 501(c)(3) organization (i.e., a nonprofit corporation).
Gifting qualifying payments during your lifetime typically bypasses the limits outlined in the annual gift tax exclusion and federal gift and estate tax exemption, which can enable you to use these exemptions for other gifts or asset transfers.
How Lifetime Gifting Can Complement Your Estate Plan
Establishing lifetime gifting strategies can significantly impact your estate plan if done correctly. For example, if you have a high-value estate that exceeds the $15 million federal threshold, your estate will be subject to considerable taxation upon your death. However, by gifting assets to beneficiaries, family members, and charitable organizations while you are still alive, you can reduce your taxable estate and better align with exemption limits.
Contact Our Experienced Estate Planning Attorneys in Mokena, Illinois
Estate tax planning is an essential part of your estate plan to pass as much of your property, assets, and finances to your beneficiaries and heirs without incurring steep gift or estate taxes. As part of your estate tax plan, employing gifting strategies during your lifetime, as outlined under the annual gift tax exclusion and the federal estate and gift tax exemption, can help you minimize tax obligations for your estate and your heirs after you pass away.
At Zapolis and Associates PC, our attorneys, Robert J. Zapolis and Briane E. Eggert, have years of combined experience helping individuals set up effective estate plans and implement lifetime gifting strategies to reduce tax burdens and provide for their loved ones. If you need assistance with estate tax planning and gifting, contact us to schedule a consultation. Located in Mokena, Illinois, we serve clients throughout the Chicagoland area, including Will County, Kankakee County, and Cook County.
