Avoiding the Gift Tax
Published February 9, 2026
The federal “gift tax” is a tax on the transfer of property by a donor via gift. A transfer is considered a gift whether the recipient receives the property directly or in trust. The gift tax applies to any transfer of property that is made without equivalent value being received in return.
How to Avoid Gift Tax
There is much law around gift tax, and what is and is not considered a gift. Accordingly, attempting to scheme around the gift tax will likely be a fool’s errand. Disguised gifts like no-interest loans and deathbed giving to reduce a taxable estate will not work as intended. Trusts are often used to facilitate gifting, but they need to be designed with gift tax law in mind in order to be effective.
Fortunately, however, there are a few exclusions to the gift tax, which makes the gift tax not as onerous as it sounds.
Annual Exclusion
Every donor is entitled to an annual exclusion. The federal gift tax exclusion amount for 2026 is $19,000 (subject to annual inflationary adjustments). This means that a donor can give up to $19,000 per recipient in 2026, without incurring a gift tax.
Unlimited Medical and Education Expense Exclusion
There is an unlimited exclusion for amounts paid by a donor on behalf of a donee for education expenses and medical expenses. The amounts must be paid directly to the educational institution or health care provider, and not paid to the donee directly, even if the done turns right around and pays the gift to the educational institution or health care provider. In order to qualify for the educational and medical expense exclusion, the donor must pay the amounts directly to the recipient entity.G
Gift-Splitting Between Spouses
IRS Code Section 2513 offers married couples an opportunity for “gift-splitting,” in which a gift by one spouse to a third party may be considered as made one-half by each spouse. This opens up some ancillary tax planning opportunities, but also effectively enables spouses to join hands to double their gifting power to $38,000 annually, regardless who owns title to the gifted assets before the gift is made.
Unlimited Marital Deduction
An exclusion applies for gifts to between spouses. The exclusion is unlimited for gifts between two citizen spouses, which is an important part of gift tax law in estate planning when it is necessary to strategically allocate assets between spouses.
If one spouse is not a United States citizen, the marital deduction is limited to $194,000 in 2026. This amount is adjusted annually for inflation.
Charitable Donations, Political Contributions and Gifts to Nonprofit Organizations
Gifts to certain nonprofit organizations are excluded from gift tax. Of course, this is to be expected. However, there are other tax benefits a donor may realize by giving to such organizations. For example, if a donor gifts an appreciated asset to certain organizations, the donor also avoids paying a capital gains tax and could get an income tax benefit.
Capital Gains Tax and Massachusetts Tax Considerations
Fortunately, there is no Massachusetts gift tax. However, gifting may still cause Massachusetts estate tax consequences. Gifting substantial assets could also cause capital gains tax implications.
Estate Planning Implications on Gifting
When making substantial gifts, it is advisable to analyze the gift in the context of an estate plan. Oftentimes from a recipient’s point of view, inheriting an asset upon the donor’s death will put the recipient in a more favorable tax situation.
Other times, gifting may cause unintended consequences to the extent that a donor’s Will or Trust have not contemplated lifetime giving, thus creating inequity and animosity among gift recipients and beneficiaries.
Ready to ensure that your gifting plans and estate plans are coordinated in a tax-efficient manner and in a way that is consistent with your wishes?
Contact Old Colony Law today to schedule a consultation.