Gift Tax Planning Attorney in New York & New Jersey

What Is Gift Tax?

Gift tax is a federal tax on transfers of property made during your lifetime without receiving equal value in return. It exists to prevent people from giving away their entire estate before death to avoid the estate tax. The federal gift and estate tax are unified — amounts used during life reduce what's available at death, and vice versa.

New York State does not impose a separate gift tax. This is a meaningful distinction: gifts made to reduce your New York taxable estate are not taxed at the state level. Only federal gift tax rules apply to lifetime transfers made by NY residents.

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The Annual Gift Tax Exclusion

The most accessible gifting tool is the annual gift tax exclusion. In 2025, you can give up to $19,000 per recipient without filing a gift tax return (Form 709) or reducing your federal lifetime exemption. This exclusion is per person, not per family — so a couple with three adult children and six grandchildren can give $38,000 to each of nine people, removing $342,000 from their combined estates every year.

**Rules to follow:**

**Give to individuals, not entities.** Annual exclusion gifts must be present interest gifts — the recipient must have an immediate right to use the funds. Gifts to certain trusts do not qualify for the annual exclusion unless the trust includes specific "Crummey" provisions notifying beneficiaries of their withdrawal rights.

**Give by December 31.** The exclusion resets each calendar year and does not carry over. A gift made on January 2 and one made on December 30 of the same year both use the same year's exclusion.

**Document every gift.** Keep records of transfer amounts, recipient names, and dates. If you ever face an estate or gift tax audit, documentation is the first line of defense.

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Direct Tuition and Medical Payment Exclusions

Two categories of gift are completely excluded from gift tax with no dollar limit — and they do not count against the annual exclusion or lifetime exemption:

**Direct tuition payments.** Payments made directly to an educational institution for tuition (not room and board) are excluded entirely. There is no limit on the amount, and no reporting requirement. A grandparent can pay $60,000 in annual tuition directly to a grandchild's private school or university with zero gift tax consequences.

**Direct medical payments.** Payments made directly to a healthcare provider for medical expenses are also excluded, with no dollar limit. These gifts are often overlooked but can be highly valuable for families supporting elderly parents or family members with significant medical needs.

Both exclusions require that payment be made directly to the institution — not reimbursed to the individual after they've paid.

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529 Education Plan Gifting

529 plans allow "superfunding" — a one-time contribution of up to five years of annual exclusion gifts in a single year. In 2025, that means $95,000 per beneficiary (or $190,000 for a married couple giving together). The contributor cannot make additional annual exclusion gifts to the same beneficiary during the five-year period, but the full amount passes out of the estate immediately.

529 contributions are treated as gifts to the beneficiary, not the account — which means they qualify for the annual exclusion. Superfunding is particularly useful for grandparents seeking to reduce their taxable estate while funding education for grandchildren.

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Using the Federal Lifetime Exemption

For families with estates large enough to be exposed to estate or gift tax, the federal lifetime exemption — $13.99 million per person in 2025 — is the primary shelter for larger transfers. Gifts above the annual exclusion are "taxable gifts" that count against this lifetime amount. Once exhausted, additional taxable gifts are subject to gift tax at rates up to 40%.

The critical issue for 2025 planning is that this exemption is scheduled to drop on January 1, 2026. A person who has used no lifetime exemption can give away up to $13.99 million this year, sheltered from gift and estate tax at the current rate. After the sunset, that shelter drops to approximately $7 million. The $7 million difference — per person — is the value of acting before year-end.

**What should you give?** For pre-2026 gifts, assets that are likely to appreciate significantly are the most valuable to transfer. Once out of your estate, all future growth is also removed from the taxable estate. Gifting growth assets — business interests, investment portfolios, real estate — rather than cash or fixed assets maximizes the value of the exemption used.

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Trust-Based Gifting Strategies

For larger gifts, direct outright transfers are not always the right tool. Trust-based structures preserve some degree of control, provide for multiple beneficiaries, and can be designed to fit specific family circumstances:

**Irrevocable Life Insurance Trust (ILIT).** Gifts to an ILIT fund life insurance premiums. The trust owns the policy, keeping death benefits out of the taxable estate. Annual exclusion gifts to ILIT beneficiaries (via Crummey notices) cover the premiums.

**Grantor Retained Annuity Trust (GRAT).** A GRAT transfers an asset into a trust while the grantor receives an annuity for a set term. If the asset grows faster than the IRS assumed rate, the excess passes to heirs tax-free, using minimal or no lifetime exemption. GRATs work well for assets expected to appreciate significantly.

**Spousal Lifetime Access Trust (SLAT).** A SLAT is an irrevocable trust where one spouse gifts assets for the benefit of the other spouse and children. It removes assets from the taxable estate using the lifetime exemption while preserving the donor spouse's indirect access through the beneficiary spouse.

**Family Limited Partnership (FLP) Gifting.** Assets placed into a family limited partnership can be gifted to heirs at a discount from their face value, due to lack of marketability and minority interest discounts. This allows more of the annual exclusion and lifetime exemption to be stretched across a larger base of assets.

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New Jersey Considerations

New Jersey eliminated its estate tax in 2018. However, NJ does impose an inheritance tax on transfers to non-immediate-family members (siblings, nieces, nephews, friends) at rates up to 16%. Gifts made during life are generally not subject to NJ inheritance tax, making lifetime gifting particularly useful for NJ residents who wish to transfer assets to more distant relatives.

NJ residents with significant estates should also consult on federal gift and estate tax exposure, as the elimination of the NJ estate tax does not affect federal obligations.

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