Gifting in estate planning: 7 mistakes that could cost you

Justlight // Shutterstock

 

Estate planning isn’t a one-time event — it’s a moving target. With gift and estate tax laws in flux and even “permanent” reforms often lasting no more than a decade or an administration, families are rethinking their approach. One powerful strategy? Lifetime gifting. But without careful planning, missteps can not only undermine your intentions but also expose your estate to greater tax liability. Comerica shares seven mistakes to avoid if you want your gifts to truly keep on giving.

Key takeaways:

• To take full advantage of tax savings under the current law, make sure you secure an experienced attorney and CPA and avoid common mistakes.
• Pay special attention to disclosure requirements, valuation qualifications, exemption limits, added complexity, and cash flow needs.

Recent changes to U.S. federal gift and estate tax exemptions under the One Big Beautiful Bill Act have reshaped planning opportunities.

To help avoid common pitfalls, this article breaks down seven common mistakes that could get in the way of your wealth transfer goals and cost you serious tax dollars.

Mistake 1: Waiting too long

Many wealth transfer techniques take time to identify, understand and implement. Once a decision is made on which strategy to use, there are additional considerations that take even more time. For example, to fully understand which asset is best for gifting requires analysis of the asset’s ownership, basis, cash flow impact and current value (among other things). Wealth transfer should not be rushed. Start today.

An experienced attorney will know how to navigate complex planning issues commonly associated with gifting. Some of these include:

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

Mistake 2: Thinking you’re done when the gift is made

You signed the paperwork and transferred your assets, and you think the process is complete.
That may not necessarily be the case. In many situations, valuations will need to be completed and gift tax returns should be prepared, filed and signed with the appropriate disclosures. In addition, making gifts in trust may require new accounts to be opened, tax ID numbers to be obtained and additional tax returns filed. New ownership may also change the way distributions are made or expenses are paid.

It is important to not only complete the gift, but also to understand the new structures, the potential changes in cash flow and the reporting and record-keeping requirements that follow the gifts. Make sure you fully understand the wealth transfer strategy that you choose and are willing to live with any new complexities that result.

Mistake 3: Failing to disclose cash and noncash gifts

For the tax year 2025, every person may gift up to $19,000 to an unlimited number of people, generally without the need to disclose the gifts to the IRS.

Any cash or noncash gift above the exemption amount must be reported on a gift tax return, due April 15 or if extended, Oct. 15 the next year. For noncash gifts, even if you believe your gift has no value, you should consider disclosing it in a gift tax return to start the running of the statute of limitations clock on the reported value.

When you disclose the value of your gift on a gift tax return, Form 709, it triggers a three-year statute of limitations. This means the IRS has three years to audit your gift, after which they typically can no longer challenge the reported value of the gifts, unless there is substantial omission or fraud. Disclosure is especially important for gifts of business interests or other assets that rely on a valuation that may include a discount.

Failing to disclose your gifts above the exemption threshold removes this statute of limitations protection and places you at risk of audits, penalties, and potential unexpected estate inclusion.

Mistake 4: Not getting a qualified valuation for non-cash gifts

By law, the value of noncash gifts must be determined by a valuation at the time the gifts are made.

This means, if you are gifting an asset such as real estate, business interests or other noncash gifts, you need to engage a qualified appraiser. The appraiser is responsible for determining the value of your property for tax purposes. The appraisal should be done as of the date of the gift and may incorporate discounts for lack of marketability, lack of control or other less common discounts.

If you determine the value on your own or use an unqualified appraiser — someone lacking the credentials, experience and specialization required by the IRS — your valuation could be challenged. It is important to have your attorney engage the appraiser to establish attorney-client privilege and to ensure the appraiser can defend you in tax court, if challenged.

Mistake 5: Ignoring exemption limitations

Gift tax exemptions are limited in several key areas.

As discussed, the annual exemption for gift tax is $19,000 per person in 2025. There is also a lifetime exemption of $13.99 million as of 2025, with the exemption rising to $15 million in 2026. Gifts made in excess of $19,000 in any given year count against the larger lifetime exemption. Regardless of how many individual gifts you make, if the cumulative value of reportable gifts exceeds the lifetime exemption amount, a gift tax of 40% on the amount over the lifetime exemption is due 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 exemption only applies if your spouse is a U.S. citizen. If either spouse is a non-U.S. citizen, be sure to consult your attorney before making the gift.

Lastly, if you create a new entity or trust for gift tax purposes, it’s important to follow the rules closely. Don’t continue treating assets that you have given away like they still belong to you.

This may cause the IRS to question the validity of your estate planning structures and seek to unwind the work you have done.

Mistake 6: Not planning for future appreciation, tax impacts or burden on the beneficiary

One of the most effective tax-saving strategies is to gift high-basis appreciating assets.
Common high-appreciation assets include:

• Stock in a growing company: Stock in growing sectors like technology and healthcare can grow significantly over a short period of time.
• Real estate in a high-demand area: Single-family, multifamily and commercial real estate can grow in the right market.
• Art and collectibles: Paintings and other highly valuable collectibles can appreciate in value as recognition of the artist or market increases.

By gifting these assets early and disclosing them to the IRS, you can avoid substantial growth in your estate and minimize future estate taxes.

While gifting appreciating assets is desirable for the donor, it is important to consider the income tax implications for the beneficiaries. The beneficiaries will receive a carryover basis, meaning the same basis that the donor had for the asset. The lower the basis, the higher the capital gain when the asset is sold by the new owner.

Because gifted assets keep the carryover basis, gifting the assets during life must be weighed against keeping the asset until death and getting a step-up in basis. Today, assets in a decedent’s estate get a step-up in basis, meaning the market value of the asset at the time of death becomes the new basis for the asset. So, before gifting appreciating assets with a low basis, consider whether it would be advantageous to keep the asset until death and benefit from the stepped-up basis.

It is also important to consider the burden placed on the recipient of the gift. For example, gifting a beach house provides an enjoyable place for vacation but may also include expensive upkeep and taxes. Consider whether the beneficiary can maintain the asset or if cash or a cash-flowing asset should be gifted in conjunction with another asset to cover the expenses.

Mistake 7: Gifting away cash flow streams

Finally, it’s important to plan for your future cash flow needs.

While trying to minimize gift taxes, it’s possible to put your personal finances in a challenging cash flow position. That’s why it is often advisable to focus on assets that carry significant value but aren’t a necessary source of income.

This story was produced by Comerica and reviewed and distributed by Stacker.