One of the things I enjoy most about estate planning is hearing what people hope to do for their families.

For many parents and grandparents, the conversation is not simply about who will inherit what someday. They want to help their children buy a first home, help a grandchild with school, or simply make life a little easier for the people they love. That often leads to a very reasonable question: If I know I want my family to receive these assets eventually, does it make sense to give some of them away now?

Sometimes, lifetime gifting may be worth considering.

It can be a meaningful way to share your success with the next generation while you are still here to see them benefit from it. Depending on the circumstances, there may also be tax advantages. But there is a big difference between simply giving assets away and having a plan for how those gifts fit into your overall financial and estate planning goals.

Understanding the Annual Gift Tax Exclusion

One of the first things that comes up when talking about gifting is the federal annual gift tax exclusion.

In 2026, an individual may generally give up to $19,000 to another person without using any of the individual's lifetime federal gift and estate tax exemption. For a married couple, that amount may potentially be $38,000 per recipient when certain requirements are met.

The limit applies separately to each person receiving a gift. For example, a married couple with three children could potentially give up to $38,000 to each child.

There is also a common misunderstanding about what happens if you give someone more than $19,000. It does not necessarily mean that you will owe gift tax. Depending on the circumstances, you may simply have additional tax reporting requirements and use a portion of your $15,000,000 lifetime federal gift and estate exemption.

The important point is that these amounts should not be viewed as a recommendation about how much you should give. They are simply rules to be aware of when considering lifetime gifts.

Pennsylvania Families Have Another Tax to Consider

Pennsylvania also has an inheritance tax that applies to many assets passed to others after death.

The rate generally depends on who receives the property. Transfers to a surviving spouse are generally taxed at zero percent. Transfers to children and other direct descendants are generally taxed at 4.5 percent. Transfers to siblings are generally taxed at 12 percent, while transfers to most other individuals are generally taxed at 15 percent. Unlike the federal estate tax, there is no exemption for smaller estates, so the Pennsylvania inheritance tax applies to most Pennsylvania estates.

Naturally, this leads some people to wonder whether giving property away during their lifetime could reduce the Pennsylvania inheritance tax that might otherwise be due later.

In some circumstances, lifetime gifting may be part of that conversation. However, Pennsylvania has rules concerning lifetime gifts, including certain gifts made shortly before death. More importantly, saving inheritance tax should not be the only consideration. A gift that saves money in one area could create tax or financial consequences elsewhere.

Be Thoughtful About What You Give Away

What you give can be just as important as how much you give.

Giving cash is generally easier to understand. Giving investments, real estate, or other property that has gone up significantly in value can be more complicated.

For example, suppose you bought an investment years ago for $25,000 and it is now worth $100,000. Giving that investment to a child during your lifetime may have very different tax consequences than having your child inherit it after your death. If your child later sells the investment, the way the gain is calculated can depend on how and when the asset was received.

This does not mean that gifting an investment or real estate is necessarily a good or bad idea. It simply means that it is worth understanding the potential tax consequences before transferring valuable property.

When an Outright Gift Does Not Feel Right

Sometimes parents and grandparents want to help the next generation but are not comfortable simply handing over a large amount of money.

Perhaps the children or grandchildren are young. Maybe there are concerns about how the money will be managed. Or perhaps the goal is to make sure family wealth lasts for many years.

Depending on the circumstances, a trust may be one option to consider. A trust can place rules around when and how money or property is available instead of giving everything directly to the recipient at once.

Trusts can also bring additional legal and tax considerations, so they are not right for every family. The important thing is choosing an approach that makes sense for your particular circumstances.

Do Not Overlook Your Own Financial Security

Parents and grandparents are often incredibly generous with their families. But before making a substantial gift, it is important to think about your own future as well.

Will you have enough for retirement? What if you need long-term care? What if your expenses increase? What if you live much longer than you expected?

Once you give an asset away outright, you generally no longer own or control it. Saving money on taxes should never come at the expense of your own long-term financial security.

Gifting Should Fit Into the Bigger Picture

There is no single gifting strategy that works for every family.

For one family, making smaller gifts over time may make sense. Someone else may be better off keeping certain investments or property. Another family may want to explore using a trust. And in some cases, making significant lifetime gifts may not make sense at all.

The important thing is that gifting decisions work alongside your Will, trusts, beneficiary designations, retirement accounts, and the rest of your estate plan.

There is also something special about lifetime gifting that has nothing to do with taxes: you may get to see your legacy at work.

You might help a grandchild with school, help an adult child purchase a first home, or simply provide some extra financial security at a meaningful time in someone's life. For many people, seeing their family benefit from what they have worked so hard to build can be incredibly rewarding. If you are considering gifting to your children or grandchildren, I would be happy to sit down with you, learn more about your goals, and discuss how those plans may fit into your overall estate plan. I invite you to use the link below to schedule a free consultation with my office.

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