A PRACTICAL GUIDE TO YEAR-END GIFTING

Why Year-End Gifting Matters

Many individuals and families use year-end gifting as a practical way to transfer assets, support relatives, and reduce future administrative burdens. Even when an estate is well below federal estate tax thresholds, strategic gifting can simplify future settlement, address family needs in real time, and ensure assets flow according to intention rather than circumstance.

Because annual exclusion amounts and specific tax rules reset each January, December is a natural checkpoint.

The following article explains the rules that apply through year-end, the types of gifts that fall outside gift tax, and how to confirm your actions are properly documented.

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Understanding the Annual Gift Tax Exclusion

The annual exclusion allows you to give up to a specific amount per recipient each year without using any of your lifetime estate and gift tax exemption. For 2025, the annual exclusion amount is expected to continue its inflation-based trajectory, though the IRS will release the finalized number in the fall. Historically, this amount increases modestly year to year.

The core principles:

• The exclusion applies per giver, per recipient.
• Married couples can combine their exclusions.
• Gifts must be of a “present interest” to qualify.

A “present interest” means the recipient has immediate access to the asset. A personal check, direct bank transfer, or transfer of securities to an individual’s brokerage account meets this standard when completed before December 31.

Annual exclusion gifting is one of the simplest tools available and is widely used regardless of net worth. Even modest estates benefit from reducing future probate assets and avoiding concentration of ownership in a single account.

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How Direct Medical and Tuition Payments Can Be Tax-Free

Some of the most powerful gifting rules involve payments made directly to medical or educational institutions. These transfers do not count toward the annual exclusion amount of $19,000 for 2026 or toward your lifetime exemption if handled properly.

Qualifying Education Payments

Tuition paid directly to a qualifying educational institution is exempt from gift tax.

Key limitations:

• Tuition only; room, board, books, and supplies do not qualify.
• Payment must go from the donor to the institution, not through the student.

Qualifying Medical Payments

Medical payments made directly to a provider for qualifying care or insurance premiums are also exempt.

Examples:

• Hospital or specialist bills
• Long-term care insurance premiums
• Prescription drug costs billed through a provider
• Diagnostic testing

For many families in Virginia, Maryland, and Washington, DC, these rules are especially relevant where private school tuition, long-term care needs, or ongoing medical expenses are part of the broader support structure. Properly applying these exemptions allows financial assistance without affecting a recipient’s future inheritance or your lifetime exemption.

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Why Year-End Timing Matters for Your Gifts

Gifts must be completed before year-end to count for the current year. Completion depends on the type of asset:

• Checks: must clear the bank before year-end.
• Wire transfers: must settle before December 31.
• Securities: the transfer must be recorded by the receiving institution.
• 529 contributions: counted when contributed, not when used.

If the gift is not completed by December 31, it will apply to the next calendar year and count toward the next year’s exclusion. This matters for families who intentionally distribute assets across multiple recipients or who use gifting as part of a multiyear planning strategy.

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Documentation: What You Should Keep

Gifting rules are straightforward, but documentation mistakes are common. Accurate records prevent confusion later and align with how fiduciaries must administer estates or trusts.

Here are the documents we recommend you keep:

• Confirmation of completed transfer (bank statements, brokerage confirmations).
• Written description of the gift and the intended recipient.
• For medical or educational payments, invoices and proof of direct payment.
• Notes regarding intent, especially for significant gifts or irregular timing.

Clear documentation benefits not only the donor but also future executors or trustees. It reduces the risk of later disputes, supports accurate estate administration, and protects the donor’s original intent.

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Why Gifting Matters Even for Non-Taxable Estates

Many individuals assume gifting is only relevant for very large estates, but this is not true.

Gifting remains meaningful even when no estate tax is expected for several practical reasons:

1. Reducing probate involvement: Fewer assets titled solely in an individual’s name can reduce probate costs and administrative time in Virginia, Maryland, and DC.
2. Supporting family during life: Assets often have greater impact when used to meet current needs rather than becoming part of a future inheritance.
3. Adjusting for unequal inheritances: Lifetime gifts help address disparities created by past support, caregiving roles, or family dynamics.
4. Simplifying estate settlement: Smaller estates often settle faster and with fewer disputes.
5. Coordinating with trusts: Gifting can align account ownership with existing revocable or irrevocable trust structures.

In other words, the absence of estate tax does not eliminate the value of year-end gifting. It simply shifts its purpose from tax avoidance to clarity, efficiency, and family benefit.

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Coordinating Gifts with Your Existing Plan

Before making a sizable gift, confirm the transfer aligns with the rest of your estate plan. Inconsistent beneficiary designations, outdated titling, or uncoordinated trust provisions can undermine the intended effect.

Consider reviewing:

• Primary and contingent beneficiaries
• TOD (Transfer on Death) / POD (Payable on Death) designations
• Revocable trust funding status
• Financial powers of attorney
• Overall liquidity and cash-flow needs

If another attorney drafted your estate plan, a review with JM Law can clarify how current gifting choices will interact with existing documents.

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Common Gifting Mistakes to Avoid Before Year-End

Several recurring issues appear each year:

1. Mixing medical or educational gifts with personal reimbursements
   If funds pass through the recipient, the exemption may not apply.
2. Missing year-end deadlines
   This is especially common with securities transfers and large checks.
3. Leaving no documentation
   Future fiduciaries must be able to verify what was gifted, to whom, and when.
4. Gifting assets with unwanted tax consequences
   Some gifts may trigger capital gains considerations for the recipient.
5. Ignoring how gifts affect the rest of the plan
   Improper coordination can unintentionally disinherit beneficiaries or overfund certain individuals.

A brief review at year-end prevents these issues and ensures your intentions are carried out cleanly.

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How a Review Can Keep Your Plan on Track

Year-end gifting continues to be one of the simplest and flexible tools available to families. Whether used for education, medical support, long-term planning, or simple generosity, these rules allow meaningful transfers without unnecessary tax exposure or administrative complexity.

If you want to confirm your strategy, or if your estate plan was drafted by another attorney and you are unsure how gifting fits into the broader structure, a JM Law review can clarify your options and ensure your plan continues to work as intended.