Annual Gift Tax Exemption Limits

I had a client, Emily, come to me last month in a panic. Her mother had recently passed, and Emily discovered a series of six-figure gifts her mother had made to various family members over the past five years – gifts she hadn’t disclosed to her estate planner. The immediate concern? Potentially triggering estate taxes and a massive IRS audit, costing her tens of thousands in penalties and lost inheritance. It was a heartbreaking situation born from a simple lack of understanding of annual gift tax rules.

It’s a common misconception that any gift, regardless of size, is immediately taxable. Thankfully, the IRS allows for an annual gift tax exclusion, meaning you can give a certain amount of money each year to individuals without incurring any gift tax. For 2026, that amount is $18,000 per recipient. This means you can gift up to $18,000 to as many individuals as you like without needing to report the gift to the IRS. For couples, that amount effectively doubles to $36,000 per recipient due to gift splitting, assuming both spouses consent to file a gift tax return, even if it ultimately shows no tax due.

However, it’s crucial to understand this is per recipient. Gifting $30,000 to one child doesn’t trigger immediate issues, but gifting $30,000 to three children does exceed the limit and requires filing Form 709, the United States Gift (and Generation-Skipping Transfer) Tax Return. Filing the form doesn’t necessarily mean you’ll owe tax. It simply reports the gift to the IRS, and the amount over the annual exclusion is applied against your lifetime estate tax exemption, which, thanks to the One Big Beautiful Bill Act (OBBBA) permanently established the Federal Estate Tax Exemption at $15 million per person ($30 million for couples) effective Jan 1, 2026. This eliminates the ‘2026 Sunset’ fear, though the top tax rate remains at 40% for assets exceeding this permanent threshold, which is now indexed annually for inflation.

As an estate planning attorney and CPA with over 35 years of experience, I always emphasize the importance of tracking these gifts. Proper record-keeping is vital. It’s also important to remember that gifting isn’t limited to cash. It includes property, stocks, or even valuable services. The value of these non-cash gifts is determined by their fair market value on the date of the gift. Furthermore, understanding the step-up in basis afforded to inherited assets is key. By gifting assets now, you potentially sacrifice that future benefit for your heirs, which is why a careful analysis of capital gains implications is critical, a point only a CPA-Attorney can comprehensively address.

Finally, consider the potential impact on eligibility for government benefits. Gifting can impact financial aid applications or eligibility for programs like Medicaid. We must always analyze the entire financial picture before initiating any gift strategy.

What does a California probate court look for when interpreting testamentary intent?

In California, a last will and testament operates within a probate system that emphasizes intent, clarity, and procedural compliance. When properly drafted, a will does more than distribute property—it creates legally enforceable instructions that guide courts, fiduciaries, and beneficiaries through administration with fewer disputes and less uncertainty.

For California residents, understanding how intent, authority, and compliance interact is one of the most effective ways to protect family harmony and estate integrity. A will that anticipates probate scrutiny is far more likely to be honored as written and far less likely to become the source of unnecessary conflict.

Controlling Legal Standards Governing California Estate and Asset Transfers

• Probate & Court Procedure:
  California Courts – Wills, Estates, and Probate
  The official judicial branch guide for navigating the probate process; it provides updated 2026 checklists for determining if an estate qualifies for “Summary Probate” under the $208,850 personal property limit or the $750,000 primary residence threshold (AB 2016).
• Property Tax Reassessment (Prop 19):
  California State Board of Equalization (Prop 19)
  The definitive resource for understanding the “Parent-to-Child” reassessment exclusion; it outlines the strict one-year deadline for heirs to move into an inherited home as their primary residence to maintain the parent’s low property tax base.
• Advance Healthcare Planning:
  California Attorney General – Advance Health Care Directive
  Provides the official California statutory form and legal guidelines for appointing a health care agent; this resource emphasizes the necessity of combining a medical power of attorney with a HIPAA release to ensure doctors can communicate with family during an emergency.
• Federal Estate & Gift Tax:
  IRS Estate Tax Guidelines
  The authoritative federal portal for estate and gift tax reporting; this page reflects the 2026 “OBBBA” permanent exemption of $15 million per person, effectively replacing the previously scheduled Tax Cuts and Jobs Act (TCJA) sunset.
• Digital Asset Access (RUFADAA):
  California RUFADAA Law (Probate Code §§ 870-884)
  Access the full statutory text of the Revised Uniform Fiduciary Access to Digital Assets Act; it explains why executors are legally barred from accessing encrypted accounts, email, or crypto-wallets unless the decedent provided explicit “prior consent” in their estate plan.