🎁 Gifting to Children: How to Give When It Matters Most
Using your lifetime exemption to help — without triggering gift taxes
When kids (or grandkids) need financial help — for a home down payment, starting a business, or getting a fresh start — parents often want to step in with more than just the annual allowance.
The good news: you can give more than the yearly gift limit and avoid gift tax, if you understand the rules and file the right paperwork.
💡 How the Gifting Rules Work
Annual Exclusion (2025):
$19,000 per person — the amount you can give to someone each year, tax-free, without filing.
Married couples: Each spouse can give $19,000 to the same recipient, meaning $38,000 per child in 2025, without triggering any tax or paperwork.
Lifetime Exemption (Unified Credit): Gifts beyond the annual exclusion count against your lifetime exemption — currently $13.99 million per person in 2025.
👉 Example: You and your spouse give your child $50,000 in 2025.
$38,000 → covered by the annual exclusions (no gift tax or filing needed on that portion).
$12,000 → will reduce your lifetime exemption and must be reported on IRS Form 709.
🔑 What Is the Lifetime Exclusion?
Think of the lifetime exclusion as a giant “coupon” the IRS gives you.
Each year you can give up to the annual exclusion ($19,000 in 2025) per person, tax-free.
If you give more than that and don’t want to pay taxes, then the extra amount uses up part of your lifetime exclusion.
The lifetime exclusion is the total amount you can give away during your life (or at death) without paying gift or estate tax.
Tax above the exclusion: Once your lifetime exclusion is fully used, additional gifts or estate transfers are taxed on a graduated scale, starting at 18% and rising up to a top rate of 40%.
💡 In 2025, the lifetime exclusion is $13.99 million per person. Thanks to the new OBBBA law, it will be $15 million in 2026 and beyond, adjusted for inflation.
Bottom line: You usually won’t owe tax when giving — but large gifts reduce the amount your estate can later pass tax-free.
📝 What You Need to Do
If a gift exceeds the annual exclusion, here’s how to handle:
File IRS Form 709 by April 15 of the following year.
Report the taxable portion of the gift (the portion above the applicable annual exclusions).
Indicate on the form that you are using part of your lifetime exemption.
Include basic details: gift description, value at date of gift, your relationship to the recipient. If applicable, trust details such as EIN and trust terms should be noted.
Note: Filing a Form 709 doesn’t mean you owe gift tax, it simply tracks how much of your lifetime exemption has been used.
🎓 Smart Ways to Gift to Children Without Using Up Your Exemption
These gifting strategies can deliver help without eating into your lifetime exemption:
Direct tuition payments — paying a school directly for a child’s education is tax-free and doesn’t count as a gift.
Medical expense payments — paying a provider directly for a child’s qualified medical expenses is also tax-free.
529 college savings plans — using the 5-year front-loading election lets you gift five years’ worth of annual exclusions upfront (up to $95,000 per donor in 2025, or $190,000 per couple).
UGMA/UTMA accounts — these custodial accounts are a simple way to transfer cash or investments to a minor, though the gift is considered complete once made.
⚠️ Why This Still Matters
Even though OBBBA made the higher lifetime exemption permanent, every non-taxable gift above the annual exclusion still reduces your exemption.
That reduction affects how much of your estate will be sheltered from federal estate tax at death.
State-level estate or inheritance taxes (like Maryland’s) are not affected by OBBBA, so they still need to be considered in planning.
While there is no longer a looming deadline to “use it or lose it” nationally, planning sooner rather than later is often still smart, especially if asset growth outpaces inflation adjustments or laws change again.
🎁 Receiving a Gift: What It Means for the Child (Donee)
No income tax on gifts received
The recipient does not pay income tax on a gift, regardless of the amount.
A $50,000 check from a parent is treated as a tax-free transfer to the child.
Gift tax responsibility is on the giver (donor)
Filing Form 709 and applying the lifetime exclusion is the donor’s job.
The child does not file or report the gift on their return.
Note: Children don’t pay tax on money or property they receive as a gift — but if the gift is an investment, they inherit the giver’s cost basis. That means taxes may come into play later if they sell.
✅ Gifting Takeaways
If you want to give more to children at the times they need it most, the lifetime exemption still gives you a powerful tool and now it’s permanent under OBBBA.
Just remember to:
Stay within the annual exclusion when possible.
Use your lifetime exemption for larger gifts, and file Form 709 when needed.
Lean on smart strategies like tuition payments, medical payments, and 529 front-loading to maximize your impact while preserving exemption.
Giving is about more than numbers — it’s about empowering family, reducing financial stress, and helping in meaningful moments.
As we say at Sandbox, “Live More and Worry Less.”
This is newsletter post is for informational purposes only and does not constitute estate or tax advice. You should consult with a qualified tax professional or estate attorney to address your specific circumstances.