You Can Give Your Kids More Than You Think

Most people who think about it, will tell you they can gift $10,000 or $15,000 per year to their children, and anything above that triggers a gift tax.

Wrong, for two reasons.

They are talking about the annual gift exclusion, which, in 2026, is now $19,000.

But that’s not the gift limit. The lifetime gift limit (by limit I mean how much you can gift before you are hit with a gift tax) is $15 million - a lot more than $19,000.

You can give your daughter $500,000 this year and owe no gift tax.

The Annual Gift Exclusion

The annual gift exclusion is $19,000 per recipient in 2026. Back in the day it was $10,000. You can give that much to as many people as you want (kids, grandkids, nephew, friend, or even enemy) with no tax and no gift tax return to file. And married couples can double this amount. A married couple can give $38,000 to each person if each spouse gives $19,000. In California, a gift from community property is generally treated as half from each spouse. If one spouse gives separate property, gift-splitting may require a gift tax return.

The Real Gift Tax Limit Is $15 Million

Under the One Big Beautiful Bill, signed in July 2025, the amount you can gift and die with is $15 million per person for 2026. It has no scheduled sunset, and it's indexed for inflation from here. An individual can die with $15 million before there is an estate tax, and a married couple can potentially shelter $30 million using their separate exemptions. Which means, for approximately 99.87% of Americans, there is no federal estate tax. That percentage is an estimate based on the Tax Policy Center’s projection of 3,900 taxable estates in 2026 and roughly 3 million deaths annually.

What most people don’t know is that the estate and gift tax exemptions draw from the same well.

When gifting, you are not limited to the $19,000 per person per year gift amount. You can gift much more than that.

To the extent your gift is more than the annual exclusion, it will be reconciled against the $15 million lifetime gift and estate tax exemption. For example: gift $1 million to one person in 2026, and after the $19,000 annual exclusion you’ll have used $981,000 of your $15 million. Whatever is left covers your estate at death. If your lifetime taxable gifts plus your estate at death stay under the exemption, there is no federal gift or estate tax.

Gift $1 million to one person in 2026. Your remaining exemption is $14,019,000, assuming you haven’t used any of it before. Each married spouse has a separate exemption; together they can potentially shelter $30 million, subject to prior gifts and applicable estate tax rules.

California has no gift tax and no estate tax.

You Can Make Big Gifts With No Tax

If you're single, and you give your daughter $500,000 this year.

The first $19,000 is covered by the annual exclusion.

The remaining $481,000 comes off your $15 million lifetime exemption.

You file a gift tax return, Form 709, by April 15, 2027.

You owe nothing. You have $14,519,000 of exemption left.

If you're married and the $500,000 comes from community property, each of you is treated as giving $250,000. Each of you excludes $19,000, each of you uses $231,000 of your own exemption, and each files Form 709. Still no tax.

Many people know about the annual gift exclusion, but most don't know they can go far past it and still pay no tax. Your daughter generally does not owe income tax just for receiving a cash gift, either. The donor handles any gift tax reporting.

Your Kids Need the Money at 40, Not 65

For a long time, the standard advice was simple: hold everything until death. The kids get a step-up in basis, and you keep control. The theory still holds, but it might not be the best outcome for your family.

Plenty of my clients, especially boomers, have more than they will ever spend. Retirement is secure. The house is paid off. Healthcare is covered. The extra money sits in a brokerage account, growing perhaps, but doing little to help the people who will eventually inherit it.

Now look at when that money actually reaches your kids. If you live to 90, they're probably in their 60s when they inherit. By then they've bought their house, raised their kids, paid for college, and are planning their own retirement. Your inheritance becomes one more account in their retirement savings. It's nice. But at that age, it’s not a game changer.

The same money at 40 changes a lot.

A down payment. $150,000 at 35 gets your son into a house instead of paying rent for another ten years. That's ten years of equity he would never have had, and a mortgage he pays off before he retires instead of after.

Your grandchildren's college. If you pay qualifying tuition directly to the school, the payment is excluded from gift tax. It doesn't use your $19,000 and it doesn't touch your $15 million. The payment has to go straight to the school, not to your kid, and the exclusion doesn't cover room, board, or books. Qualifying medical bills paid directly to the provider work the same way. Your grandkids graduate without loans, and your daughter doesn't drain her own retirement to pay for it.

A business. If your daughter has talked for years about opening her own shop, $200,000 now is the money to do it. At 63, she's not starting anything.

The mortgage. Paying off your son's $300,000 mortgage frees up his monthly payment for the rest of his working life.

You also get to see it. You get to visit the grandkids in the house you helped buy, and watch the business get off the ground. If you wait until death, all of that happens without you.

I've written about this before in Why Leave Your Children an Inheritance? I've also written about how to do it without raising trust fund babies in Lord Voldemort, Money and Your Kids. The $15 million exemption takes the tax worry off the table for almost everyone.

The Catches

Don't give away what you need. A gift is irrevocable. If there's a real chance you'll need the money for care at 85, keep it. Nail down your own security first.

Watch the basis. A gifted asset carries over your cost basis. An inherited asset generally gets a step-up to its value at your death, which I explain in Selling an Inherited California Home.

Say you give your son stock you bought for $50,000 that's now worth $400,000. He generally takes over your $50,000 cost basis, leaving $350,000 of built-in gain that could be taxable when he sells. Leave it to him at death and the capital gain generally goes away because he will get a stepped-up basis. For married Californians the gap is even wider, because community property can get a step-up on both halves at the first spouse's death. More on that in Community Property and California Estate Planning. Give cash or high-basis assets. Hold the low-basis stock and the house you bought in 1985.

But…don’t let the tax tail wag the dog. It’s not only about tax savings. It’s about helping your family thrive.

If you gift more than the annual exclusion, you are supposed to file a form 709 gift tax return. So long as you didn’t gift more than $15 million, there won’t be a gift tax. When you need to file is covered in Do You Need to File a Gift Tax Return?

Think about structure. Direct gifts are the simplest. For larger amounts, or when you're worried about a child's divorce, creditors, or spending habits, an irrevocable trust may be the better vehicle. That's the same protection I describe in Protecting Your Children's Inheritance From Divorce and Lawsuits. If the trust is properly structured, annual-exclusion gifts can fund it over time. Not every gift to a trust qualifies for the annual exclusion. Larger gifts can use the lifetime exemption.

The Bottom Line

You are not limited to $19,000 a year. You can give substantially more without paying gift tax by using your lifetime exemption. If your estate is well under $15 million, using some of it now just moves the money to your kids earlier, when it can still change something for them.

The rules are simple once you separate the annual freebie from the lifetime exemption. The real question is whether the timing is right for your family.

Estate Planning

Need help with your estate plan? Contact us for a free, 15-minute initial call with one of our attorneys.