Regardless of one's level of wealth, gifting is an important tool for an effective estate planning strategy. Individuals have many potential gifting options, both simple and complex, that may be utilized to pass wealth down to lower generations and reduce the size of one's taxable estate to avoid estate and inheritance tax at death. These gifting strategies, either alone or in conjunction with others, can have significant benefits to a family if they are started early and done consistently.

One of the simplest techniques for making tax-free gifts to children and grandchildren each year is through the use of annual exclusion gifts. In 2024, the Internal Revenue Code permits an individual to gift up to $18,000 per person per year without any gift tax consequences. These "free" gifts are a powerful way for a parent or grandparent to pass wealth down each year to children, their spouses, grandchildren and their spouses. A married couple can even combine their annual exclusions by splitting their gifts and passing down double the wealth to the next generation. While annual exclusion gifting is easy and effective, one should be cautious of making gifts to minors, individuals with substance abuse problems, and individuals with current or potential creditor issues. Donors should also be careful about making gifts if they are concerned about future eligibility for public benefits.