At Katzner Law Group, we regularly work with clients who want to give generously to family and friends—without triggering unexpected tax bills. While giving gifts might seem straightforward, the IRS gift tax rules can make the process surprisingly complex.

The good news? With proper planning, there are multiple legal ways to avoid paying gift tax altogether. This guide breaks down what gift tax is, how it works, and the strategies you can use to transfer wealth while staying within IRS guidelines.

What Is the Gift Tax, and Who Has to Pay It?

The gift tax is a federal tax applied to the transfer of property or assets from one person to another without receiving full value in return. This tax applies to both cash and non-cash gifts and includes:

• Real estate
• Vehicles
• Stocks and bonds
• Jewelry or artwork
• Loan forgiveness
• Payment of another person’s debts

The person giving the gift (the donor), not the recipient, is generally responsible for any tax due.

Understanding the IRS Gift Tax Limits in 2025

To reduce the tax burden on modest gifts, the IRS has established thresholds that allow tax-free giving up to certain amounts.

Annual Exclusion Limit (2025)

You can give up to $19,000 per recipient per year without needing to report the gift or pay any tax.

• If you’re married, you and your spouse can gift-split, giving up to $38,000 per recipient annually.
• You can give to unlimited recipients, meaning the total amount you give away annually can be quite substantial if properly planned.

Lifetime Exemption (2025)

In addition to annual exclusions, you also have a lifetime gift and estate tax exemption of $13.99 million in 2025. This means you can give away that amount (above annual exclusions) over your lifetime without owing gift tax.

Keep in mind: Gifts exceeding the annual exclusion do not trigger immediate taxes unless you exceed the lifetime exemption. However, they must be reported on IRS Form 709.

How to Avoid Gift Tax: Legal Strategies That Work

Here are the top ways to give smartly—and legally—without getting hit by the gift tax:

1. Use the Annual Exclusion Wisely

Structure your giving so that no individual receives more than $19,000 annually. If you’re supporting multiple children or grandchildren, you can give each up to the limit every year.

2. Pay Medical and Education Expenses Directly

Paying someone’s medical or tuition expenses directly to the provider is completely exempt from gift tax, no matter the amount.

• Tuition payments must be made directly to the school.
• Medical bills must be paid directly to the hospital, doctor, or pharmacy.

3. Create a Spendthrift Trust

If you’re concerned about a beneficiary mismanaging their inheritance, you can place assets in a spendthrift trust. This trust:

• Provides tax benefits
• Shields the assets from creditors
• Prevents beneficiaries from accessing or selling trust property on their own
• Gives the trustee full discretion on when and how distributions are made

Wealth managers and estate planners often recommend this strategy to preserve family wealth while staying within IRS gifting rules.

4. Gift Appreciating Assets Early

Giving away assets likely to appreciate—like stocks or real estate—can be a savvy strategy. You lock in the current market value for tax purposes, and any future appreciation benefits the recipient, not your estate. Doing so in a trust is often the best structure. 

5. Utilize Charitable Giving

Gifts to qualifying charitable organizations are not subject to gift tax and may qualify for income tax deductions as well.

• You can make lifetime gifts or include the charity in your estate plan.
• You can also set up a charitable remainder trust (CRT) to retain income while eventually gifting the asset to charity.

6. Gift-Splitting for Married Couples

Married couples can double their annual exclusion by agreeing to gift-split. For example:

• You gift $30,000 to your son in 2025.
• Normally, this would exceed the $19,000 limit.
• But by splitting the gift, $15,000 counts from each spouse—so no tax or filing is needed.

(Note: You’ll still need to file Form 709 to notify the IRS of the gift-splitting.)

Real-Life Gifting Scenarios

Let’s look at how these rules work in practice.

Scenario 1: Helping a Child with a Down Payment

You give your daughter $40,000 to help buy a home.

• $19,000 is covered by the annual exclusion.
• The remaining $21,000 reduces your lifetime exemption (you report it using Form 709).
• No gift tax is due unless your total gifts exceed $13.99 million.

Scenario 2: Paying Tuition Directly

You pay $35,000 directly to your granddaughter’s university.

• This gift is completely exempt from gift tax because it’s a direct tuition payment.
• You still have your full annual exclusion to gift her money separately.

Scenario 3: Funding a Trust

You place $250,000 into a spendthrift trust for your nephew.

• The trust restricts access and shields the funds from potential lawsuits.
• You report the gift if it exceeds the annual exclusion.
• Depending on how the trust is structured, you may qualify for certain tax benefits.

Common Mistakes That Could Cost You

Avoid these pitfalls when making significant gifts:

• Writing checks to recipients for medical or tuition costs instead of paying the providers directly
• Failing to file Form 709 when required—even if no tax is owed
• Giving too much too fast, which may unintentionally affect your estate planning goals
• Not documenting gifts properly, which can cause confusion or disputes later

Gift Tax vs. Estate Tax: What’s the Difference?

Many people confuse the gift tax with the estate tax, but they are two sides of the same coin.

• Gift tax applies to transfers made during your lifetime.
• Estate tax applies to assets transferred after death.

Both use the same lifetime exemption—currently $13.99 million in 2025. Every dollar of lifetime gifts over the annual exclusion reduces your estate tax exemption later.

This is why it’s important to track gifts over time and work with an estate planning attorney to balance your lifetime giving and estate planning goals.

New York Considerations: No Gift Tax (But With a Twist)

While the federal government imposes a gift tax, New York State does not have a separate gift tax. However, New York does require that certain large gifts made within three years of your death be added back into your taxable estate.

This is known as the “three-year add-back rule,” and it can increase your estate tax bill if not carefully planned for.

Learn more from the New York State Department of Taxation

How Katzner Law Group Can Help

At Katzner Law Group, we take a strategic, personalized approach to gift and estate tax planning. Whether you’re giving to loved ones, funding a trust, or supporting a cause, we’ll help you avoid unnecessary taxes and ensure your legacy is protected.

Our services include:

• High-net-worth estate planning
• IRS compliance and reporting (Form 709)
• Trust creation and administration
• Charitable giving strategies
• Cross-border gift tax considerations (for non-citizens)

We tailor our advice to your goals—whether that’s maximizing exemptions, minimizing tax exposure, or preserving multi-generational wealth.

Talk to an Estate Planning Attorney Today

Planning to give? Let us help you do it the smart way. Avoid gift tax and protect your wealth with expert legal guidance.

Call Katzner Law Group at 855-528-9637
Or schedule a consultation online

Your generosity deserves to be preserved—not penalized.