Before the Ball Drops: A Look at Year-End Gifting

As the year comes to a close, many families are thinking about charitable giving.  But charitable giving isn’t the only type of year-end giving worth considering.  Year-end can also be a great time to make gifts to children, grandchildren, or other family members.

For families with substantial wealth, making gifts during your lifetime can be a simple way to help the next generation while also reducing the assets that may ultimately be subject to estate tax.  And you do not necessarily need to give away millions of dollars to make a meaningful difference.

Start with the annual exclusion

In 2026, you can give up to $19,000 per person, per year without using any of your lifetime gift and estate tax exemption.  A married couple can generally give up to $38,000 per recipient if both spouses make gifts or properly split the gifts.

For example, a married couple with three children and five grandchildren could potentially give each of those eight individuals $38,000, for a total of $304,000 of gifts in one year, without using their lifetime exemptions.

These gifts can be made outright or, depending on your goals, to a trust for the benefit of a child or grandchild.  One important consideration is that the annual exclusion generally applies only to present-interest gifts; so gifts to certain trusts may require special provisions to qualify.

Some payments are not gifts at all

There are also two particularly useful exceptions that are often overlooked.

You can pay someone's tuition directly to an educational institution without the payment counting as a taxable gift.  Similarly, you can pay someone's medical expenses directly to the medical provider without using your annual exclusion or lifetime exemption.

There is an important distinction: the payment generally needs to be made directly to the school or medical provider.  Giving the money to your child and having your child pay the bill does not qualify for this special treatment.

This can be especially valuable when helping with college tuition, graduate school, medical treatment, or other significant expenses.

What if you want to give more?

If you want to give more than the annual exclusion amount, you can still make the gift.  The additional amount generally uses some of your lifetime gift and estate tax exemption.

For 2026, the federal basic exclusion amount is $15 million per person.

Using your lifetime exemption does not necessarily mean you will owe gift tax today.  Instead, you are using a portion of the amount you can transfer during your lifetime and at death without federal gift or estate tax.

A gift that uses the lifetime exemption generally must be reported on a federal gift tax return (Form 709).  The return is generally due April 15 of the following year.  The return also provides an opportunity to document the gift and establish how much of your lifetime exemption you have used.

Cash is easy. What about real estate or a business?

This is where year-end planning can get more interesting.

Giving $19,000 of cash is easy.  Giving $19,000 of publicly traded stock is also relatively straightforward because there is a readily available market value.

But what if you want to give an interest in a family business, LLC, partnership, private company, or real estate?

Those assets generally require a determination of fair market value as of the date of the gift.  A qualified valuation professional may need to analyze the underlying assets, financial statements, cash flow, ownership structure, comparable transactions, and other factors.  Depending on the asset, the valuation may also consider appropriate discounts for lack of control or lack of marketability.  The IRS requires fair market value to be determined as of the date of the gift.

This is why the calendar matters.

If you want to make a gift of a closely held business interest before December 31, you generally need to actually complete the gift before year-end.  However, the appraisal does not necessarily have to be completed at the time the gift is made.  In practice, a valuation professional may complete the appraisal in January and determine the value as of the gift date, using the information available at that time.

That can provide some breathing room at year-end—but it is not a way to move the valuation date into the new year.  The gift is still valued on the date it was made.

For a significant gift of a private business interest or real estate, we would want to involve the appropriate attorney, CPA, and valuation professional early.  A properly documented appraisal can also provide important support for the value reported on the gift tax return.  The IRS generally requires adequate disclosure of the gift and its valuation methodology on Form 709, and a qualified appraisal can be part of that documentation.

Don't wait until December 31

The lesson is simple: year-end gifting does not have to mean writing a check on December 31.

For some families, the best gift may be cash or marketable securities.  For others, it may be an interest in a family business, LLC, real estate, or another asset that has significant appreciation potential.

If you are considering a larger gift before year-end, start the conversation now.  The gift itself, the legal documents, the transfer mechanics, and—if necessary—the valuation all take time.

Sometimes the most valuable year-end gift is not simply giving assets away: it is creating a thoughtful plan for who receives the assets, how they will be managed, and what those assets can do for the next generation.

Composition Wealth, LLC (“Composition Wealth”) is a registered investment adviser. Advisory services are offered only to clients or prospective clients where Composition Wealth and its representatives are properly licensed or exempt from licensure.

This communication is for general informational purposes only and should not be considered investment, financial, tax, or legal advice. It should not be treated as a solicitation to buy or sell securities and does not consider individual investment objectives, strategies, tax status, or horizon. Please consult your own tax, legal and accounting advisors before making any related decisions.