Ask an Advisor: Tax-Efficient Gifting Strategies for High-Net-Worth Families

Ask an Advisor: Tax-Efficient Gifting Strategies for High-Net-Worth Families

Thoughtful gifting can be one of the most effective ways for high-net-worth families to reduce taxes, support loved ones during their lifetimes and advance philanthropic goals.

 

Use the Annual Gift Tax Exclusion Strategically

The IRS allows an annual gift tax exclusion, which increases periodically for inflation. Under this rule, an individual can gift up to the exclusion amount each year, per recipient, without incurring gift tax or needing to tap into their lifetime exemption. These gifts may be made in cash, securities, or property, and there is no limit on the number of people you can gift.

Married couples can double the impact by each making a gift up to the exclusion amount to the same recipient. This enables substantial tax-free transfers over time and is one of the simplest tools for reducing the size of a taxable estate. For families with multiple children, grandchildren, or extended relatives, this approach can compound significantly across generations.

 

Gift Splitting for Married Couples

Gift splitting allows married couples to treat a gift made by either spouse as made equally by both. This strategy unlocks the ability to gift up to double the annual exclusion amount per recipient without triggering gift tax. To use gift splitting, you must file a joint return and include IRS Form 709, the gift tax return.

For high-net-worth couples aiming to reduce future estate tax exposure, gift splitting can be beneficial  to annual family gifting programs and multi-year wealth-transfer plans.

 

Pay Tuition or Medical Expenses Directly

When tuition is paid straight to an educational institution—or when qualified medical expenses are paid directly to a healthcare provider—these transfers are not considered taxable gifts. There is no dollar limit, no gift tax, and no impact on the annual exclusion.

This strategy can meaningfully support children or grandchildren pursuing private school, college, or graduate programs, or assist family members experiencing major medical expenses – without reducing other gifting capacity.

 

Donate to Qualified Charitable Organizations

Charitable gifting offers dual benefits: supporting meaningful causes and potentially reducing taxable income. Gifts to qualified charitable organizations are tax-free to both the donor and recipient, and donors may be eligible for a charitable deduction.

For philanthropic families, charitable planning can also be coordinated with estate planning strategies such as donor-advised funds, charitable trusts, or legacy funds to create lasting impact.

 

Use Qualified Charitable Distributions (QCDs) from IRAs

A Qualified Charitable Distribution is one of the most tax-efficient giving strategies available to individuals age 70½ or older. A QCD allows you to transfer funds – up to the annual IRS limit – directly from an IRA to a qualified charity. These distributions count toward your required minimum distribution (RMD) but are excluded from taxable income, allowing you to support charities while lowering your tax bill.

For retirees with significant tax-deferred balances, QCDs can dramatically reduce lifetime RMD-related taxes.

 

Donate Appreciated Securities Instead of Cash

Gifting appreciated securities – such as stocks, ETFs, or mutual funds held for more than a year – allows donors to avoid capital gains tax while still receiving a potential charitable deduction. The receiving qualified charity can then sell the securities tax-free.

This is more tax-efficient than selling the securities first and donating the after-tax proceeds. For high-income earners who consistently support charities, appreciated-asset gifting can materially improve long-term tax outcomes.

 

Accelerate Gifts to a 529 Plan Using Super-funding

Parents and grandparents seeking to make meaningful contributions to a child’s education can “superfund” a 529 Plan by front-loading up to five times the annual gift tax exclusion in a single year. This contribution is then treated as if it occurred over five years for gift-tax purposes.

 

Final Considerations

Before implementing any gifting strategy, it’s essential to understand IRS limits, documentation requirements, and long-term implications. Effective gifting should align with your broader estate plan, cash-flow needs, and family wealth objectives.

 

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This article was originally published on Wealthtender and is intended for informational purposes only and should not be considered financial advice. You should consult a financial professional before making any major financial decisions. Wealthtender earns money from financial professionals, which creates a conflict of interest when these professionals are featured in articles over others. Read the Wealthtender editorial policy and terms of service to learn more. Wealthtender is not a client of these financial services providers.

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