Giving during your lifetime can be a meaningful way to share your success, support family members, or contribute to causes you care about. Whether you help an adult child purchase a home, pay for a grandchild’s college tuition, or fund a charitable foundation, thoughtful gifting can be an important part of your legacy. Yet, when gifts are made without professional guidance or coordination with your overall estate plan, the consequences can be costly. Improper valuations, tax surprises, or unequal distributions among heirs can all disrupt even the most carefully crafted estate plan. With that in mind, the Los Angeles attorneys at Schomer Law Group, APC discuss several common gifting mistakes that could undermine your estate plan in California and how to avoid them.
Misunderstanding Federal Gift Tax Rules
The federal government limits how much you can give away each year without triggering tax reporting requirements. For 2025, the annual exclusion amount is $19,000 per recipient. Married couples may combine their limits to give $38,000 per person each year without filing a gift tax return. Gifts that exceed this limit must be reported to the IRS using Form 709, even if no tax is due. Many people mistakenly believe that gifts to relatives, or gifts of non-cash property such as art, jewelry, or real estate, are automatically exempt. The IRS instead looks to the fair market value of the item transferred at the time of the gift. Understanding these rules ensures your generosity does not lead to unexpected tax filings or penalties.
Failing to Account for the Lifetime Gift and Estate Tax Exemption
The lifetime exemption, currently $13.99 million per person through 2025, applies to the total value of taxable gifts you make during your life and the value of your estate at death. Each time you make a taxable gift, the amount counts against your lifetime exemption. Once that threshold is reached, future gifts and your estate could be taxed at rates of up to 40 percent. Although the Lifetime Exemption has been increased for 2026, it remains subject to change. As such, individuals with sizable estates should carefully review their gifting plans on a routine basis. Many do not realize how quickly a lifetime exemption can be depleted when gifts are made over several years, especially if those gifts involve appreciating assets such as business interests or real estate.
Overlooking California and Multi-State Laws
Although California does not impose a state-level gift or inheritance tax, those who own property in multiple states need to consider how other jurisdictions treat lifetime transfers. For example, Connecticut currently levies its own gift tax, while other states have lower estate tax thresholds than the federal limit. If you own a vacation home, rental property, or business interests outside California, your gifts or estate could be subject to those other states’ rules. In addition, California community property laws may affect how married couples make gifts or structure joint ownership. Working with an attorney who understands both federal and state-level regulations helps ensure that your gifting strategy remains compliant and effective across jurisdictions.
Ignoring the Capital Gains Impact of Lifetime Gifts
When you transfer an appreciated asset during your lifetime, the recipient inherits your original cost basis rather than receiving a “step-up” in value. This means they may owe capital gains tax on the difference between your purchase price and the sale price if they later sell the asset. For example, if you gift stock purchased for $25,000 that is now worth $100,000, the recipient could face tax on a $75,000 gain. If the same stock were inherited after your death, its value would typically reset to its fair market value at that time, potentially reducing or eliminating the tax. Deciding whether to transfer appreciated assets now or through your estate should involve careful consideration of potential tax outcomes for both you and the recipient.
Neglecting to Coordinate Gifts with Your Estate Planning Documents
Lifetime gifts that are not documented or integrated into your estate plan can create confusion and conflict among heirs. Suppose you gift a large down payment to one child to purchase a home but do not adjust your Will or trust to reflect that transfer. Other beneficiaries may feel disadvantaged, which can lead to disputes or even litigation after your death. To avoid this, every significant gift should be recorded and factored into your estate distribution plan. Your attorney can help you determine whether to characterize such gifts as advancements against an inheritance or as separate, independent transfers. Proper documentation promotes clarity and fairness, ensuring your intentions are honored.
Can We Help You Avoid Gifting Mistakes in Your California Estate Plan?
For more information, please join us for an upcoming FREE seminar. If you would like assistance to avoid gifting mistakes in your California estate plan, contact the experienced Los Angeles estate planning attorneys at Schomer Law Group APCby calling (310) 337-7696 to schedule an appointment.
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