7 Common Gifting Mistakes to Avoid in Estate Planning

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Key takeaways:

• Lifetime gifting can be an effective wealth transfer strategy when paired with careful planning, regular evaluation and an understanding of gift and estate tax laws.
• Understanding the rules on gifting money to family can affect decisions about which asset is most suitable for gifting, how to structure the gift and when to transfer an asset.
• Consideration should be given to the gift tax system and how strategies such as using the lifetime gift tax exemption and annual gift tax exemption can maximize transferable assets.

The role of lifetime gifting in estate planning

Lifetime gifting is a commonly used estate planning tool that can provide meaningful tax and wealth transfer benefits when implemented thoughtfully. Recent changes to federal gift and estate tax exemptions under the One Big Beautiful Bill Act (OBBBA) have expanded planning opportunities for many families, but realizing those benefits often requires careful execution.

Even well-intentioned estate and gift tax planning strategies can lead to unintended consequences when key considerations are overlooked. Understanding these common mistakes can help you develop more effective estate planning strategies and make informed gifting decisions.

Common gifting mistakes to avoid

1. Underestimating the time required for effective planning

Many wealth transfer techniques take time to implement. Even after identifying a strategy, additional planning may be necessary to ensure its effectiveness. Determining which assets are best suited for gifting requires careful analysis of ownership, tax basis, cash flow impact, current value and other important considerations.

An experienced attorney can help navigate complex planning issues commonly associated with gifting, including:

• Allocating the generation-skipping transfer (GST) tax exemption: Understanding when to shield assets for future generations, as well as the timing and reporting requirements.
• Gift splitting: When structured properly, gift splitting allows a married couple to use both annual gift tax exclusions and lifetime gift exemptions for a single gift. Gift splitting requires consent from both spouses and proper reporting.
• Disclosures: Certain gifts require disclosure to the IRS (see Mistake 3). An experienced attorney and certified public accountant (CPA) can help you engage a qualified, credentialed appraiser and review or file gift tax returns. They can also defend you in tax court against any challenges that arise.

2. Overlooking post-transfer responsibilities

Effective wealth transfer strategies involve more than simply transferring an asset. Additional administrative, tax and reporting obligations may continue long after the asset changes hands.

Valuations, gift tax filings, trust administration and changes in ownership structure can all create ongoing responsibilities for both the donor and recipient. These considerations should be factored into the decision-making process alongside the potential tax and estate planning benefits.

Understanding these requirements in advance can help support a smoother transition and reduce the likelihood of unintended complications.

3. Failing to disclose cash and non-cash gifts

Under 2026 federal gift tax rules, individuals may give up to $19,000 to an unlimited number of people without having to report the gift to the IRS. Any cash or non-cash gift above the annual exemption amount must be reported on a gift tax return, which is due by the tax filing deadline, typically April 15 of the year after the gift is made, or, if extended, Oct. 15 the following year.

Non-cash gifts may warrant disclosure even when their value appears minimal. Proper disclosure on IRS Form 709 generally triggers a three-year statute of limitations, during which time the IRS may review the reported value. After that period, the IRS typically can no longer challenge the valuation unless there has been substantial omission or fraud.

This protection can be particularly important for gifts of business interests or other assets that rely on a valuation that may include a discount. Failure to disclose gifts above the exemption threshold removes this statute of limitations protection and places you at risk of an audit, penalties and potential unexpected estate inclusion.

4. Failing to obtain a qualified valuation for non-cash gifts

By law, non-cash gifts generally must be valued as of the date the transfer occurs. If you are gifting assets such as real estate or business interests, a qualified appraisal is often necessary to establish a supportable value for gift tax purposes. Depending on the asset, the valuation may incorporate discounts related to marketability, ownership control or other relevant factors.

Valuations that are self-determined or prepared by individuals who do not meet IRS qualification standards may be subject to scrutiny. Working with experienced legal, tax and valuation professionals can help address potential questions should the value later come under review.

5. Ignoring exemption limitations

In addition to the $19,000 annual federal gift tax exemption for 2026, there is also a lifetime gift exemption of $15 million. Gifts made in excess of the annual exclusion generally reduce the amount available under the larger lifetime exemption. Under the OBBBA, the lifetime exemption will be indexed annually for inflation.

Once the cumulative value of reportable gifts exceeds the lifetime exemption amount, a 40% gift tax is due on the excess at the gift tax return deadline.

Additionally, the tax code includes an unlimited marital exemption. Gifts made to your spouse are exempt from gift taxes. However, this applies only if your spouse is a U.S. citizen. If either spouse is a non-U.S. citizen, consult your attorney before making the gift.

Lastly, if you create a new entity or trust for gift tax purposes, it is important to follow the rules closely. Treating assets that you have given away as though they still belong to you may cause the IRS to question the validity of your estate planning structures and seek to unwind the gift.

6. Underestimating the impact on the beneficiary

Gifting appreciating assets can be an effective way to reduce future estate tax exposure by transferring future growth outside the estate. Examples of appreciating assets include company stock, real estate and valuable collectibles such as art.

However, estate tax savings should be weighed against potential income tax consequences for the recipient. Beneficiaries generally receive the asset’s carryover basis, meaning they inherit the donor’s original tax basis. Assets with a low basis may generate larger capital gains when sold.

In contrast, for assets passed on in an estate, the market value of the asset at the time of death becomes the new basis for tax purposes. Before gifting appreciating assets with a low basis, it may be worthwhile to evaluate whether transferring the asset during your lifetime or at death better aligns with your overall planning objectives.

It is also important to consider the practical impact on the recipient. For example, an asset such as a vacation home can provide long-term value but may also include expensive upkeep and taxes. Understanding whether the beneficiary can maintain the asset or support its costs is an important part of the decision-making process.

7. Gifting away cash flow streams

While reducing the size of a taxable estate is important, gifting strategies should also account for your future income and liquidity needs. Before transferring assets, evaluate how a gift may affect your long-term cash flow, liquidity and financial flexibility.

The most effective gifting strategies are considered within the context of a broader wealth plan. A thoughtful approach can help ensure assets are transferred without compromising future planning goals.

A final takeaway

Gifting in estate planning can be an effective way to transfer wealth, but achieving the intended outcome requires careful consideration beyond the transfer of assets. Understanding the gift tax exemption, valuation requirements, beneficiary circumstances and long-term financial needs can help strengthen your gifting strategy and support your broader estate planning goals.

By evaluating these factors as part of a broader wealth strategy, individuals may be better positioned to transfer assets in a manner that aligns with their goals while minimizing unintended consequences.

To learn more about how to maximize your gifts and discuss gifting strategies, connect with your Fifth Third Private Bank advisor.