As we move closer to the holiday season, it is natural to pivot our thinking towards gifts. But have you ever considered the role that gifting can play in effective year-end financial planning?

Let’s briefly discuss the transfer taxes in place at the federal level:

- The gift tax
- The estate tax
- Generation-Skipping Transfer (GST) taxes

The gift and estate tax applies to transfers either during lifetime or at death. Additionally, the GST tax may apply to transfers to grandchildren, more remote descendants, and other younger individuals. The tax code provides exemptions to these taxes. Among them are the lifetime gift and estate tax exemption (gift and estate tax exemption) and the GST tax exemption.

Additionally, widowed taxpayers may be able to take advantage of spousal portability. This means that a surviving spouse may have access to any gift and estate tax exemption amount at his or her death as the result of an unused estate tax exemption amount from the deceased spouse.

What gift, estate and GST tax exemptions apply today?
For 2025, the gift, estate, and GST tax exemption amount is $13.99 million, so taxpayers can gift up to $13.99 million without having to pay a gift tax.

The gift, estate, and GST tax exemption was scheduled to expire on December 31, 2025. However, new legislation passed this year, “The One Big Beautiful Bill Act” permanently extended the gift, estate and GST gift tax exemption beginning in 2026 to $15 million indexed annually for inflation.

Should I gift now given the exemption increase?
Absolutely! Consider the following reasons …

- What does “permanent” mean? Although the current level in the gift, estate, and GST tax exemption under current law is deemed “permanent,” there is no guarantee that the exemption will not be reduced or eliminated in the future. Laws can — and often are — amended as government priorities and administrations change. Gifting now, while the exemption is at its current level, will alleviate the risks of a potential change in the tax law and the availability of the gift, estate, and GST tax exemption.
- Freezing the value of assets. By “gifting away” personal assets now, you can “freeze” the value of the assets for gift/estate/GST tax purposes. This means that should the assets appreciate post gifting, your estate or beneficiaries will not owe additional transfer tax on the appreciated amount, and any future appreciation is removed from your estate, thereby saving your beneficiaries a potentially large tax in future estate taxes.
- Differences in gift and estate tax calculations. Although the gift, estate and GST tax exemption is unified, the gift tax and the estate tax are calculated differently. A gift tax paid during life is paid separately from the gift itself (“tax exclusive”). Alternatively, the estate tax is paid from the estate itself (“tax inclusive”) which reduces the amount of assets that the beneficiaries will receive.
- State estate taxes. If you live or own property in a state that levies an estate tax, your estate may pay a state estate tax in addition to any federal estate tax at death. Currently, 12 states plus D.C. impose a state estate tax. For example, the state of Washington provides an estate with a $3 million exemption, and for a taxable estate above $3 million, the tax rates range from 10 percent to 35 percent. Therefore, a taxable estate of a Washington resident valued above $9 million, would pay a state estate tax of 35 percent even though there would be no federal tax due given the $13.99 million federal tax exemption available. Therefore, making gifts today could alleviate some of the state estate tax in the future.

How do you efficiently gift today to utilize your exemption?
Planning today permits you to shift highly appreciated or appreciating assets out of your estate to future generations utilizing the generous gift, estate, and GST tax exemption.

Look for opportunities to transfer assets such as:

- Marketable securities
- Real property
- Transferable business interests

Transferring these assets to trusts will not only reduce your exposure to federal and state estate taxes in the future — providing tax efficiency — but also provide control and privacy by removing the assets from the public probate process.

Estate planning strategies
Are there more gifting strategies to consider that will better your life today and potentially your beneficiaries’ lives for years to come?

Yes.

While every client and their family have unique needs when it comes to structuring estate plans, the following is a high-level overview of some commonly used strategies for estate planning.

- Outright gifts (including annual exclusion gifts): Outright gifting to individuals is simple, straightforward, and easy. Annual exclusion gifts made outright or in trust allow taxpayers to give $19,000 per year to anyone, without the need to file a gift tax return and without using any lifetime exemption. In 2025 and 2026, a married couple can combine the exemption and give up to $38,000. A gift tax return is required if both spouses use “gift-splitting. Utilizing annual gifts allows the transfer of additional assets to loved ones without incurring any gift tax. Over the long term, these gifts can greatly impact estate value because the asset and any appreciation on the asset are removed from your estate.
- Gift to an irrevocable trust: A gift to an irrevocable trust for the benefit of children/grandchildren or other remote beneficiaries is also an effective way to gift assets and remove asset appreciation from your estate. This type of gifting enables the giver to utilize both the gift tax exemption and the GST tax exemption. 
- Spousal lifetime access trust (SLAT): Both spouses can execute trusts, and as long as the terms of the trusts are different, the reciprocal trust doctrine, whereby the IRS disregards the trust entity for estate tax purposes and the assets of the trusts continue to be includible in the taxable estates of the grantors, is avoided. This strategy allows spouses to take advantage of exemptions while allowing the other spouse (and children) to have access to the trust income and/or principal.
- Intentionally defective grantor trust: The assets gifted to a properly drafted intentionally defective grantor trust will remain outside of the grantor’s estate while the grantor continues to bear the income tax responsibility for the trust through the annual income tax payments. The benefit of this trust to you is the decrease in your estate through the annual income tax payments, in addition to freezing the value of appreciating property that you gift.

Other options
What if you have already used all available exemptions?

While this article focuses on gifting within the exclusion limits, there may be situations where making a taxable gift makes sense.

For example, for ultra-high-net-worth taxpayers, it may be more tax efficient overall to make taxable gifts and pay gift tax during life rather than to pay transfer taxes at death. This transfers assets outside of your taxable estate now and allows the growth of those assets to escape future estate taxes, and as discussed above, the gift tax calculation permits you to pay the tax from assets other than the gifted assets which ultimately reduces the value of your estate.

In addition to exploring strategies such as outright gifts and gifts to trusts, other sophisticated and strategic planning opportunities such as:

- Charitable Remainder Trusts
- Charitable Lead Trusts
- Grantor Retained Annuity Trusts

These are available based on your personal situation, needs, and goals for estate planning. 

Some of these planning techniques are especially relevant given interest rate uncertainty because potential interest rate decline may result in some planning opportunities to be less effective. Therefore, it is vital to plan with an eye towards flexibility to address both anticipated and unexpected events that may occur in the future.

Together with your financial professional and estate planning attorney, MassMutual Private Wealth & Trust can recommend strategies that may be most beneficial to you.