If you’re looking to share your wealth — whether by leaving an inheritance to your heirs or gifting assets during your lifetime — the unified gift and estate tax exemption is what makes that possible.
The current exemption is $15 million per individual, enabling married couples to shield up to $30 million from federal gift and estate taxes. This is a unified exemption, meaning that taxable gifts made during your lifetime reduce the amount of exemption available to shelter your estate at death.
In addition to the lifetime exemption, taxpayers can take advantage of the annual gift exclusion, which is separate from the lifetime limit. You can give up to $19,000 per year, per recipient, without reducing your lifetime exemption.
For example, if you wanted to help your sister’s family through a difficult period, you could give $19,000 to your sister, $19,000 to her spouse, and $19,000 to each of their two children. If you’re married, your spouse can make the same gifts. Together, a married couple could transfer $152,000 to a family of four without using any portion of their lifetime exemption. Because the exclusion is annual, you could repeat the same strategy in future years.
For recipients, the tax treatment depends on the asset received. Cash gifts are generally income tax-free. However, gifted investments and property typically retain the donor’s original cost basis. When the recipient later sells the asset, capital gains tax may be owed on the difference between the sale price and the donor’s basis.
Consider a house worth $450,000. If you gift the property to your sister, the amount above the annual exclusion—$431,000—would reduce your remaining lifetime exemption. Assuming no prior taxable gifts, you would still have $14,569,000 of exemption available.
The recipient generally owes no tax upon receiving the gift. However, if your sister later sells the house, her taxable gain would be based on your original basis. If you purchased the home for $200,000 and she later sells it for $500,000, her capital gain would be $300,000.
Assets inherited at death follow different tax rules. Most inherited assets receive a step-up in basis, meaning the recipient’s basis becomes the fair market value on the date of death. If your sister inherited the same house valued at $450,000 and sold it for $450,000, she generally would not owe capital gains tax.
One notable exception involves inherited retirement accounts. Most non-spouse beneficiaries must fully distribute inherited IRAs and other retirement accounts within 10 years of the original owner’s death. Withdrawals from pre-tax accounts such as traditional IRAs and 401(k)s are generally taxable as ordinary income, while distributions from Roth IRAs are typically tax-free.
Given today’s historically high exemption amounts, relatively few families will owe federal gift or estate taxes. However, it’s still important to understand how assets are titled. Adding someone to a bank account or deed before your death may be considered a taxable gift by the IRS.
Because gifting and estate planning decisions can have long-term tax consequences, it’s wise to coordinate with your estate planning attorney, financial adviser, and CPA before transferring significant assets.
If you have questions on how to gift assets or on the structure of your estate, the experts at Henssler Financial will be glad to help:
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- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the May 30, 2026 “Henssler Money Talks” episode.
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