How to Transfer Wealth to Your Children

With the federal estate tax exemption at $15 million per person, most families will never owe estate tax. So why give money away during your lifetime instead of leaving it as an inheritance?

Because the reasons go well beyond taxes. Lifetime gifts help when help matters most — a first home, graduate school, a new business, a growing family. They let you see the impact. They give children a chance to learn to manage money while you're still around to guide them. And for larger estates, or families in states with their own estate taxes, they can still meaningfully reduce the tax bill.

The Ground Rules for 2026

• Annual exclusion: You can give up to $19,000 per recipient in 2026 — to as many people as you like — without filing a gift tax return. A married couple can give $38,000 per recipient (if the gift comes from one spouse's account, the couple elects "gift splitting" on a gift tax return).
• Lifetime exemption: Gifts above the annual exclusion count against your $15 million lifetime exemption, which is shared with the estate tax. You'll file a gift tax return (Form 709), but you won't owe gift tax until the exemption is used up.
• No tax for the recipient: Gifts aren't taxable income to the person who receives them.
• Carryover basis: Assets you give away keep your original cost basis, while assets left at death generally receive a step-up. That difference matters when you decide what to give.

8 Strategies to Transfer Wealth During Your Lifetime

1. Make Annual Exclusion Gifts

The simplest strategy is also one of the most powerful over time. A married couple with three married children and four grandchildren could give $38,000 to each of those ten people every year — $380,000 annually, with no gift tax and no use of their lifetime exemption. Over a decade, that moves millions of dollars out of the estate, along with all the future growth on those dollars.

2. Pay Tuition and Medical Bills Directly

Payments made directly to a school for tuition, or directly to a medical provider for someone's care, are excluded from gift tax entirely — on top of the annual exclusion, with no dollar limit. The key word is "directly": the payment must go to the institution, not to your child or grandchild. Tuition qualifies; room, board, and books do not.

3. Superfund a 529 Plan

529 education savings plans allow a special election to front-load five years of annual exclusion gifts at once — up to $95,000 per beneficiary in 2026, or $190,000 from a married couple — without using any lifetime exemption, as long as you make no other gifts to that beneficiary during those five years. You make the election on a gift tax return, and if you die within the five-year period, part of the gift is pulled back into your estate.

The money grows tax-free when used for qualified education expenses, which now include up to $20,000 a year for K–12 education and a broader range of postsecondary credential programs (state tax treatment varies). If a beneficiary doesn't use it all, up to $35,000 over their lifetime can be rolled into their own Roth IRA, subject to annual contribution limits and a requirement that the 529 account has been open for at least 15 years.

4. Fund a Roth IRA for a Working Child or Grandchild

Any child with earned income — from a summer job, babysitting, or a part-time role — can contribute to a Roth IRA, up to the lesser of their earnings or $7,500 in 2026. You can give them the money to make the contribution. Decades of tax-free compounding make this one of the highest-impact gifts available, dollar for dollar.

5. Help With a Home Purchase

A gift toward a down payment can change a young family's financial trajectory. Lenders typically require a signed gift letter confirming the money doesn't need to be repaid. If you'd rather lend than give, an intra-family loan can work well, as long as it's documented with a promissory note and charges at least the Applicable Federal Rate (AFR) — a minimum interest rate the IRS publishes monthly, often below what banks charge. Some parents then forgive a portion of the loan each year within the annual exclusion.

6. Choose the Right Assets to Give

What you give matters as much as how much. Because gifted assets carry over your original cost basis, giving away highly appreciated stock passes the built-in capital gains tax to the recipient. Often, it's better to give cash or assets with little appreciation during your life, and hold your most appreciated assets until death, when the basis steps up. The exception: assets expected to grow significantly — such as a business interest ahead of a sale — can be worth giving early, so the growth occurs outside your estate.

Keep the "kiddie tax" in mind, too. Investment income above a modest threshold in a child's name can be taxed at the parents' rate until the child turns 19 — or 24, if they're a full-time student.

7. Use the Right Vehicle for Younger Children

Gifts to minors usually go into an account that someone else manages:

• Custodial accounts (UTMA/UGMA) are simple and flexible, but the child takes full control at the age set by state law — typically 18 or 21. That's worth weighing carefully for larger amounts.
• Trump Accounts, a new tax-advantaged account for children under 18 created by the 2025 tax law, began accepting contributions on July 4, 2026. Family members and others can contribute up to $5,000 per child per year in total, and children born from 2025 through 2028 may be eligible for a one-time $1,000 federal contribution.
• Trusts offer the most control. You decide when and how the beneficiary receives money, and a well-drafted trust can protect assets from creditors and divorce.

8. Use Your Lifetime Exemption Strategically

For families whose wealth may exceed the exemption — or who live in a state with its own estate tax — larger lifetime gifts can still pay off. Moving assets out of your estate now means their future growth happens outside it, too. Tools like spousal lifetime access trusts (SLATs), grantor retained annuity trusts (GRATs), and dynasty trusts can accomplish this while preserving flexibility. For business owners, these strategies are covered in depth in our business succession planning guide.

Strategies at a Glance

Don't Give Away What You Need

The most important rule of lifetime giving is to take care of yourself first. Before making significant gifts, make sure your own retirement is secure under conservative assumptions — including a long life and meaningful health care costs. Gifts are generally irrevocable. Stress-testing your plan before you give lets you be generous with confidence.

Talk About It

Gifts work best when they come with context. Explain what you're giving, why, and what you hope it will make possible. If you're helping one child more than another — with a down payment, say — decide whether and how you'll even things out, and tell them. Clear communication now prevents misunderstandings later. And if your children are about to receive a significant sum, our guide for young heirs is a helpful place for them to start.

The Bottom Line

With the estate tax exemption at historic highs, lifetime giving is less about avoiding taxes and more about impact: helping your family when it matters most, teaching financial responsibility, and seeing your generosity at work. The best gifting plans are deliberate — the right assets, the right accounts, and the right amounts, all coordinated with your own financial security.

This article is for general educational purposes only and is not tax, legal, or investment advice. Tax laws change frequently, and how they apply depends on your circumstances. Consult a qualified professional before acting.