The Overlooked Estate Planning Tool: Lifetime Gifting
Lifetime gift planning is an effective estate planning tool that attorneys and clients often fail to discuss and utilize. Understandably, estate planning is an uncomfortable topic for most people. A lot of this fear and uncomfortablness concerning one’s estate plan can be alleviated by having a conversation about what a client’s life, children, and future entails with a proper estate plan. Providing sound legal advice and information about estate tax and gifting for one’s estate plan will not only demystify gifting and the gift tax lore, but provide your client with another valuable option for their estate plan.
Estate Tax Exclusion Amount and Gifting:
Washington estate tax, sometimes referred to as death tax, applies to any Washington resident or for a married couple, the last surviving spouse to pass away. Estate tax is triggered at just over $2.1M (in 2025) and increases slightly each year. This means every dollar over the triggering point is taxed by the state of Washington up to 20% before heirs receive their inheritance. For married couples, many attorneys implement a trust or a Will with a trust embedded that includes death-tax-avoidance provisions (a “Disclaimer Trust” “A-B Trust” “Credit Shelter Trust”) in their estate plan. This allows married couples to have a threshold point of approximately $4.2M. So, married couples who have a net worth under $4.2M can avoid paying any estate tax with proper estate planning.
However, it is important to note that the trigger point includes all assets: life insurance death benefits, retirement accounts, your home, vehicles, and business valuations. Married couples with a net worth over $4.2M, especially with children, should implement aggressive gifting earlier rather than later in life. If these particular clients wait too long to begin utilizing the lifetime gift plan, they may not have sufficient time to bring their net worth under the threshold amount and doing so last minute can unleash another host of issues when done in death bed gifting scenarios.
Payment of Gift Tax:
Gifting can be the quickest and most effective means of staying under the estate tax triggering point. Gifting does not come with the payment of gift tax in Washington. If you give more than $19,000 in a year (in 2025) to one individual, you will simply need to file a gift tax return with the IRS. The lifetime gift tax exemption is $13.99 million in 2025, and for married couples filing jointly it is $27.98 million. However, in 2026, the exclusion amount is set to revert to its pre-2018 level of about $5 million (as adjusted for inflation) per individual, so this amount may change at the end of the year.
Filing a “gift tax return” does not mean you pay taxes on gifts (unless you are worth over $27M and are giving away over $27M). It means you file a tax form (Form 709), with the IRS stating that you have made a gift of $19,000 for the reporting year. The IRS then reduces the gifting person’s lifetime triggering point for federal death tax by every dollar gifted over $19,000 – the Washington triggering point is not reduced, which is outstanding. With death tax avoidance trusts embedded in a married couple’s Trust or Wills, the de facto triggering point is $27M. So even if you gifted millions, this reduction in federal triggering point would be relevant to very few people.
Now, knowing that you can gift and not pay gift taxes in Washington, and there is no limit on lifetime gifting, the next question is: where is the tax break? The answer is…it is only after you pass away. It is not a tax break that the gifting party sees during their lifetime, rather Washington estate taxes and gifting are closely linked. Gifts made during one's lifetime can reduce the total value of their estate, thereby reducing potential estate taxes that would be taken from their assets after death. This money could be given to your heirs or to the State of Washington, the decision is exclusively yours to make and consider.
Per Recipient Not Total Gifts
Only gifts that exceed the lifetime exemption again - $27M will be subject to payment of gift taxes. The annual exclusion is per recipient, not the sum total of all your gifts. That means, for example, that you could gift $19,000 to your cousin, another $19,000 to a friend, another $19,000 to a neighbor, and so on in 2025 without having to file a gift tax return in 2026.
If you’re married, you and your spouse could each give away $19,000 in 2025 without needing to file a gift tax return in 2026. If you want to combine your annual exclusions to give someone $38,000, you can choose to take advantage of "gift splitting". Gifts between spouses are unlimited and don’t trigger a gift tax return. Although, if the spouse isn't a U.S. citizen, special rules may apply.
The Best Reason to Gift Is Not Estate Tax Avoidance
There are reasons other than estate tax avoidance for gifting, which is why gifting should be given more thought when establishing an estate plan. Gifting during your lifetime can provide financial support to your children, help them pay for education, buy a house, or ease the burden of other expenses. It can also provide peace of mind knowing you have contributed to their financial well-being. Gifting provides income to the recipient, that is not included in your estate.
To sum this all up, if you are in a financial position to gift freely, there is no reason not to implement planned gifting, with the caution that you should consult with an estate planning attorney, a CPA, and a financial advisor. Large-scale gifting can be a very effective means of avoiding Washington State estate tax and carrying out your goal of benefitting family and friends during your lifetime. A gifting plan alongside your estate plan is the best estate plan.
This is intended to be a source of general information, not an opinion or legal advice on any specific situation, and does not create an attorney-client relationship with our readers. If you would like more information regarding whether we may assist you in any particular matter, please contact Holmquist + Gardiner.
