Gift Tax Planning in 2026: What the $15 Million Exemption Does and Doesn’t Change

By Paul Lechner, Esq., CPA, LLM in Taxation · October 2026

Since the One Big Beautiful Bill Act raised the federal gift and estate exemption to $15,000,000 per person for 2026, I hear the same conclusion from prospective clients: “Then I don’t have to worry about gift tax.” For most families, the tax itself is unlikely to be owed. But the exemption is only one of several moving parts, and the families who stop planning at that point routinely leave real money on the table. Here is what I teach my graduate estate planning students, and what I walk clients through in my office.

The 2026 Numbers

For context, the exemption was $5.45 million in 2016 and reached $13.99 million in 2025. Congress has moved this number repeatedly, which is exactly why I tell clients to treat any single year’s rules as a planning window rather than a permanent promise.

What Actually Counts as a Gift

A gift is a voluntary transfer of property without full and adequate consideration. The donor must be competent, intend the transfer, and give up dominion and control; the recipient must accept delivery. That sounds simple, but the indirect gifts are where clients get surprised. Paying a family member’s debt, retitling property jointly, and lending money at below-market interest can all be gifts. A loan of $10,000 or less is generally ignored, and a loan of up to $100,000 is limited by the borrower’s net investment income, but above $100,000 the full imputed interest applies. The lender reports that imputed interest as income and is treated as having gifted it to the borrower.

A gift is also not complete until control is truly released. For a joint bank account, no gift occurs until the non-contributing owner actually withdraws funds.

Make the Annual Exclusion Work Every Year

The $19,000 exclusion is “use it or lose it” by December 31. It resets, but it does not accumulate. Married couples who elect to split gifts can give $38,000 per recipient without touching their lifetime exemption. The gift must be a present interest, meaning the recipient can use or enjoy it now. A gift in trust for a child ordinarily fails that test, which is why well-drafted irrevocable trusts include Crummey withdrawal powers, giving each beneficiary a limited window to withdraw a contribution and converting it into a present interest gift.

Crummey powers carry a trap many do-it-yourself plans miss. When a beneficiary lets a withdrawal right lapse, the lapse is treated as a gift by that beneficiary to the other trust beneficiaries to the extent it exceeds the greater of $5,000 or 5% of trust assets. With several beneficiaries and larger contributions, a child can unintentionally make taxable gifts to siblings. Drafting around this is routine, but only if someone is paying attention.

Transfers That Never Count

Some of the best planning tools do not use the exclusion or the exemption at all. Tuition paid directly to a school and medical expenses paid directly to a provider are fully excluded. Transfers to a U.S. citizen spouse and to qualified charities carry an unlimited deduction. A 529 plan can be “front-loaded” with five years of annual exclusions at once, which means a grandparent can fund $95,000 in a single year and a couple can fund $190,000, without gift tax. Payments of legal support obligations and transfers under a divorce decree are generally not gifts either.

Form 709: When You Must File

A gift tax return is due April 15 of the year following the gift, and it can be extended along with the donor’s income tax return. Payment of any tax is still due April 15. Most people assume that gifts under the annual exclusion never require a return, and that is generally correct, with one important exception: if spouses elect to split gifts, a return is required even when every gift is below the exclusion.

I also recommend filing when a gift involves a valuation discount, such as a minority interest in a closely held business. The assessment period generally runs three years from filing, but where no return is filed there is no limitation period at all. A return that adequately discloses the gift is inexpensive protection against a valuation dispute years later.

The Trap Nobody Mentions: Income Tax Basis

With a $15 million exemption, the transfer tax is often not the expensive problem. The income tax is. Property received by gift generally carries the donor’s basis and holding period. Property inherited at death receives a basis equal to fair market value. A parent who gifts a low-basis asset to a child may save estate tax that was never going to be owed while handing the child a built-in capital gain that a step-up at death would have erased.

Gifts of loss property are worse. If the fair market value at the date of the gift is below the donor’s basis, the recipient takes a dual basis: the donor’s basis to compute gain, and fair market value to compute loss. If a donor with a $10,000 basis gives away an asset worth $8,000, and the recipient later sells it for $9,000, there is neither gain nor loss, and the donor’s $2,000 of built-in loss has simply vanished. The rule of thumb is that property in a loss position should be sold, not given. The loss belongs to the donor.

Match the Asset to the Recipient

When gifts are justified, the choice of which asset to give is often worth more than the amount. Cash is rarely the best gift. The better approach, which I walk through with clients and students using a worked example, is to sort the portfolio.

Highly appreciated, low-basis holdings go to charity, avoiding the capital gain entirely and generating a charitable deduction. Assets with the highest expected growth go to the youngest family member, so the future appreciation compounds outside the donor’s estate. High-yield income property goes to the family member in the lowest income tax bracket, so the income is taxed at the lowest rate. And loss property is sold by the donor.

Lifetime gifts also reduce what is ultimately in the taxable estate: the future appreciation and income on the transferred asset, and any gift tax paid more than three years before death, all stay out of the gross estate.

Don’t Forget Illinois

Illinois does not impose a gift tax, but it does impose its own estate tax, with a $4,000,000 exclusion that is far lower than the federal figure and no portability for a surviving spouse. A couple whose combined estate is comfortably under the federal threshold can still face a significant Illinois estate tax bill. That makes lifetime gifting, trust structure, and proper use of both spouses’ exclusions a live issue for many Southwest Suburban families who think the federal headline number applies to them. How lifetime taxable gifts interact with the Illinois computation needs to be modeled before, not after, a large gift is made. See our guides on Illinois estate tax in 2026 and using an ABC trust for Illinois estate tax planning.

A Practical Year-End Checklist

Before December 31, confirm that annual exclusion gifts have been made to each intended recipient, and that the checks cleared in time. Review 529 funding and any direct tuition or medical payments. Decide whether any gift should be cash, appreciated stock, or neither, based on basis and recipient. Confirm whether a Form 709 will be needed, particularly for split gifts, trust contributions, or discounted business interests. And have your estate plan reviewed against the Illinois exclusion, not just the federal one.

Plan the gift before you make the gift.

This article provides general information for educational purposes and is not legal or tax advice for any particular situation. Tax figures reflect 2026 law as of the date of publication. Reading this article does not create an attorney-client relationship.

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