How to Use Gifting to Minimize Estate Taxes in Massachusetts

Grandfather and his granddaughter

Understanding the Annual Gift Tax Exclusion

The IRS allows individuals to gift a certain amount of money each year without triggering gift tax or using up their lifetime estate and gift tax exemption. For 2025, the annual exclusion amount is $19,000 per recipient. Married couples can combine their exclusions to gift up to $38,000 per recipient each year.

Why Gifting Matters for Estate Tax Planning

Gifting reduces the size of your taxable estate, which can be especially valuable in high-tax states like Massachusetts. By systematically transferring assets out of your estate during your lifetime, you can lower the eventual estate tax burden for your heirs.

Example:

A married couple in Massachusetts has three children and four grandchildren. By taking advantage of the 2025 annual exclusion of $19,000 per recipient, each spouse can gift $19,000 to each of their seven beneficiaries — a total of $38,000 per recipient. This allows them to transfer $266,000 per year ($38,000 × 7) out of their estate without filing a gift tax return or using any of their lifetime exemption. Over 10 years, this strategy could remove over $2.6 million from their taxable estate.

Beyond the Annual Exclusion

For those who want to gift more than the annual exclusion, the excess amount applies against your lifetime estate and gift tax exemption, which is $13.99 million per person in 2025. While this may not trigger immediate taxes, it reduces the amount you can transfer tax-free at death.

Using Irrevocable Trusts

High-net-worth individuals often use irrevocable trusts to move large amounts of wealth out of their estates. These trusts can preserve control and asset protection while still removing the value from the donor's taxable estate.

Strategic gifting often involves collaboration between financial, tax, and legal advisors.

Other Gift Tax Exemptions

• Unlimited gifts to a U.S. citizen spouse
• Direct payments to medical providers or educational institutions (not considered taxable gifts)

Filing Requirements

Gifts above the annual exclusion require filing IRS Form 709. While no tax is typically due, this allows the IRS to track lifetime exemption usage.

Final Thoughts

Gifting can be a powerful tool to reduce estate taxes and transfer wealth efficiently. Whether using annual exclusion gifts or more advanced trust strategies, it’s important to coordinate your gifting plan with your overall estate and financial strategy.