Five Things About Gifting That All Donors Need To Know

For many clients, the annual gift exclusion is an important planning opportunity. In 2025, the annual exclusion for tax-exempt gifts to a single beneficiary is $19,000, an increase from $18,000 in 2024.

Since these gifts can be made each year, they can accumulate to significant amounts over multiple years without tax consequences for either the donor or the beneficiary. What’s more, gifting rules are based on gifts being from individuals to individuals. So, a married couple each have the ability to gift $19,000 in 2025 to a specific individual within the year.  For example, if a couple was intent on assisting a married child with a home downpayment, they could each gift $19,000 to both the adult child and the child’s spouse, effectively transferring $76,000 ($19,000 x 4) to that household within a calendar year without requiring the filing of any gift tax return.

However, if an individual donor gives more than the annual exclusion amount to a single beneficiary in a given year, the excess is deducted from the donor’s applicable estate tax exclusion—effectively reducing the threshold at which estate taxes may be owed.

With that in mind, here are five key rules to consider when making gifts:

1. Gifts Must Be of “Present Interest.”The beneficiary must have an unrestricted right to use the gift in the current year. A gift made in 2025 with conditions preventing its use until future years does not qualify for the annual gift exclusion.
2. No Limit on Beneficiaries.There is no restriction on the number or type of beneficiaries who can receive gifts. For example, a donor with three children and four grandchildren can gift each individual $19,000 in 2025, totaling $133,000 in tax-exempt gifts. There is no requirement that the recipient have a particular relationship with the donor.
3. Annual Gifts Are “Use It or Lose It.”If you gift an adult child $10,000 in 2025, you cannot roll over the remaining $9,000 to increase the 2026 gift exclusion. If the exclusion remains at $19,000 in 2026, the most you can gift tax-free that year is still $19,000. A multi-year gifting strategy crafted with the help of your MPPL financial advisor can help align your gifts with your financial and estate planning goals.
4. The Value of Physical Gifts and Travel Counts.Non-cash gifts, such as cars or vacations, count toward the annual exclusion. For instance, if you buy your grandchild a used car worth $10,000 in 2025, you can only give this grandchild an additional $9,000 in cash or other gifts without exceeding the exclusion amount.
5. Trusts Do Not Qualify as Direct Beneficiaries.Gifts to a trust typically do not qualify for the annual gift exclusion, as trusts are designed to hold assets for future benefit. However, certain trusts with specific provisions, such as Crummey trusts, may allow annual exclusion gifts. Always consult a tax or legal advisor before implementing a gifting strategy involving trusts.

By understanding these rules, you can make the most of your gifting strategy while minimizing tax implications. Be sure to work with your MPPL financial advisor and legal advisor to ensure your approach aligns with your broader estate planning goals.