Many of those who have achieved a certain level of financial success turn their thoughts toward establishing a financial legacy that can benefit the next generations. Such considerations typically involve careful tax and estate planning, coupled with gifting strategies that allow the efficient transfer of wealth and minimize the tax burden on heirs. In fact, tax-efficient gifting can transform everyday asset transfers into deliberate methods offering multiple advantages for preserving a family legacy.
In this article, we’ll explore tax-efficient gifting strategies such as leveraging low-basis shares, consideration of trusts, and managing annual exclusion limits. These approaches can help minimize tax liabilities and preserve more of wealth for heirs, giving a financial legacy the chance to grow and thrive.
The Annual Gift Tax Exclusion: A Basic Tool
Tax-efficient gifting is a strategy designed to minimize tax liabilities while transferring wealth to the next generation. Whether one considers cash gifts or appreciated assets like stocks or real estate, structuring these gifts properly can help reduce the size of a taxable estate while maximizing the financial benefits for the next generation.
One of the foundational elements of tax-efficient gifting is the annual gift tax exclusion. In 2025, you can gift up to $19,000 per recipient each year without triggering gift tax implications. For example, a married couple can each gift $19,000 to a child or grandchild for a total of $38,000. If they have an adult child who is married, then the couple can gift $76,000 to their adult child’s household without triggering a gift tax return or gift tax implications. If the adult child has children of their own, the couple can gift an additional $38,000 to each grandchild, and so on. By consistently leveraging this annual exclusion, wealthy households can gradually transfer wealth to future generations while avoiding the complexities of gift tax filings.
The lifetime gift tax exemption provides additional flexibility for larger transfers, making it possible for persons to gift substantial sums during their lifetimes without incurring gift taxes. As of 2025, an individual’s lifetime exemption amount is $13.99 million.
Thinking about Cost Basis
If an estate holds appreciated assets—stocks or even real estate purchased at a low price that have since grown significantly in value, for example—gifting these assets can offer significant tax advantages. When an appreciated asset is gifted, the beneficiary inherits the giftor’s cost basis. This means that if they decide to sell the asset in the future, their capital gains tax will be calculated based on the original purchase price rather than the current market value or the value at the time of the gift.
This strategy is especially beneficial when the recipient is in a lower tax bracket than the donor. The potential tax savings can be substantial in such cases, as the lower tax rate applies to any future capital gains. Gifting low-basis shares helps manage the taxable estate and potentially educates younger family members on the importance of responsible asset management.
On the other hand, it may be advisable to gift shares that have fallen in value since their purchase. For example, families with a single remaining member approaching life expectancy who owns assets currently valued below the purchase price may wish to consider gifting those shares to family members who would have inherited them in the normal course of events. Because the beneficiary’s cost basis is set at the price at the time of the gift, the donor’s unrealized losses go away, and at the same time, the taxable estate is reduced in size. The heirs may then choose whether they want to sell the assets with few or no tax consequences or hold them for potential future appreciation.
Other Estate Planning Tools
In addition to direct gifts, trusts offer another layer of opportunity. For example, an irrevocable trust is a basic tool that can effectively remove assets from the taxable estate while allowing the grantor to dictate the terms and timing of distributions. These trusts can also be structured to utilize annual gift exclusion and lifetime exemptions, enhancing overall tax efficiency.
When gifting appreciated assets through a trust, the tax treatment depends on the type of trust. In a grantor trust, the donor retains responsibility for income taxes, but the beneficiary inherits the original cost basis, meaning any future capital gains are taxed at that lower value. Other trusts, like revocable trusts or certain irrevocable trusts, can provide a step-up in basis at the donor’s death, which means beneficiaries avoid capital gains taxes on the appreciation that occurred during the donor’s lifetime. For more information on these and other uses of trusts in estate planning, consulting with an estate planning professional or an attorney who specializes in estate planning is advised. Some trusts, such as dynasty trusts, help preserve wealth across generations by shielding assets from estate taxes, ensuring the family legacy continues without incurring additional tax burdens. To summarize, the key is selecting the right trust to align with your goals, minimize taxes, and protect your wealth for future generations.
Planning Is Vital
While the benefits of tax-efficient gifting are clear, it’s essential to approach these strategies with careful planning. Mis-valuing assets or inadvertently exceeding annual exclusions can lead to unintended tax consequences. Meticulous record-keeping and a clear understanding of the tax rules are essential to avoid such pitfalls.
Additionally, timing is crucial. The landscape of tax law is subject to change, and what works today might require adjustment in the future. In fact, unless Congress intervenes, the lifetime gift tax exclusion mentioned above is set to decrease significantly in 2026 to approximately $7.2 million for individuals. This reduction would substantially lower the amount of wealth that can be passed on to beneficiaries without incurring taxes. Staying informed about updates in tax legislation—and working closely with trusted financial and estate planning advisors—can help ensure that the strategy remains effective and compliant.
At Rothschild Wealth Partners, we recognize that securing the financial legacy for future generations is a priority for many of our clients. If you have questions about the tax-efficiency of your current estate plan, please contact us to schedule an in-depth conversation.
Disclosure: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.
