As the year draws to a close and we prepare for 2025, now is an opportune time to focus on personal and charitable gift planning. This process involves reviewing gifts made during your lifetime and those intended for after death, while considering the impact of current and anticipated tax laws.

Annual Exclusion and Lifetime Gift Limits

For gifts made to individuals during their lifetime, the annual exclusion limit for 2025 is $19,000 per recipient. Married couples can utilize “gift splitting” to double the amount, allowing gifts of up to $38,000 without incurring gift tax liability.

As the law stands today, individuals can transfer up to $13.61M in combined lifetime gifts and wealth transfers at death. The law is set to expire, or “sunset,” at the end of 2025. If no legislative action is taken, the limit will revert to its 2017 level, adjusted for inflation, likely around $7Mper person. With the possibility of changes under a unified federal government, the estate tax exemption could be extended, modified, or increased.

Additional Tax-Free Transfers

Some asset transfer plans remain fundamentally unchanged, but it is worth revisiting them alongside gift planning. Certain asset transfers are not considered taxable gifts, offering significant benefits:

• Educational Expenses: Tuition payments made directly to qualifying educational institutions are excluded from gift tax. This applies to grade school, high school, and college tuition, provided payments are made directly to the institution.

• Medical Expenses: Payments made directly to medical providers for another person’s expenses, including medical insurance premiums, are not considered gifts.

This means that an individual could pay a grandchild’s educational expenses and medical insurance, in addition to giving that grandchild $19,000 in 2025 without incurring any gift tax.

Charitable Giving and Tax Deductions

Individuals making charitable gifts and planning to claim deductions on their income tax return should note the increased standard deduction amounts for 2025, which have risen in recent years:

• Single or Married Filing Separately: $15,000
• For Head of Household: $22,500
• Married Filing Jointly: $30,000

While many individuals make charitable gifts for purposes other than tax benefits, understanding these thresholds is essential for maximizing deductions when itemizing on annual tax returns.

Estate Planning with Charitable Gifts    

Charitable giving is common in many estate plans, allowing individuals to support causes that hold personal significance. These sorts of gifts need to be revisited to ensure alignment with current goals and circumstances. Over time, an organization’s mission may shift, or an or an individual’s priorities may change, potentially favoring a different organization. In some cases, a charity may cease to exist altogether. If such situations arise, courts may need to determine whether the individual’s intent was to support a particular mission, a specific organization, or simply to secure a charitable tax deduction.

Donor-Advised Funds (DAFs)

A growing number of individuals are turning to Donor Advised Funds (DAF) for their lifetime and testamentary charitable giving. A DAF is not required to make annual distributions and can typically be funded with as little as $10,000. DAFs allow individuals to contribute during high-income years while deferring distributions until retirement or other times of need.

It’s worth noting that DAFs are subject to certain restrictions. For example, funds cannot be used to purchase benefits for the donor, such as event tickets, and scholarships cannot be directed to specific individuals. While there have been proposals to require annual DAF distributions, these have not been enacted into law.

Qualified Charitable Distributions (QCDs) from IRAs

Qualified Charitable Distributions allow individuals aged 70½ or older can make charitable contributions directly from their IRAs. Key points include:

• Maximum annual gift of $108,000 per person
• Gifts can satisfy Required Minimum Distribution (RMD) requirements for those aged 73 or older
• Gifts cannot be made to DAFs or other private charitable foundations

As we approach 2025, thoughtful planning for personal and charitable gifts can help maximize benefits for both recipients and donors. Given the potential for tax law changes, consulting with a trusted advisor can ensure that your gifting strategies remain aligned with your goals and the evolving legal landscape. Mansour Gavin’s Estate Planning attorneys are here to assist you.