Inheritance & Gift Tax Rules: What You Need to Know for Your Legacy

Succession planning isn’t just about who gets the vacation home or the vintage car collection. It is a complex puzzle where the pieces are constantly moving. For high net worth individuals, the gift tax is often the biggest hurdle to clear when trying to pass down wealth without the government taking a massive cut. Most people don’t realize that the IRS views a “gift” as basically any transfer of property or money where you don’t get full value back in return. It’s a broad net. We often help clients with tax planning and preparation to ensure these transfers don’t trigger unnecessary headaches at filing time.

The Mechanics of the Annual Gift Tax Exclusion

The annual exclusion is your first line of defense — the amount you can give to as many people as you want each year without reporting it or touching your lifetime exemption. The 2026 numbers worth keeping straight:

• Federal annual gift exclusion: $19,000 per recipient, per year (IRS Rev. Proc. 2025-32).
• Married couples electing gift splitting: $38,000 per recipient, per year.
• Federal lifetime estate and gift exemption: $15 million per individual ($30 million per married couple), permanent under the One Big Beautiful Bill Act signed July 4, 2025 — replacing the prior law’s scheduled reversion to roughly $7 million per person at the end of 2025.
• Washington state estate tax exemption: $3.076 million for deaths through June 30, 2026; $3 million for deaths on or after July 1, 2026 (WA Department of Revenue).
• Oregon state estate tax exemption: $1 million — among the lowest in the country (Oregon Department of Revenue).

A few practical notes on those numbers. The annual exclusion is “use it or lose it” — unused capacity does not carry forward to next year. Married couples need to formally elect gift splitting on Form 709, even when it feels like obvious arithmetic. And state estate taxes apply regardless of the federal exemption: a Washington resident with a $5 million estate has a Washington estate tax problem long before the federal $15 million floor enters the picture. The OBBBA exemption is permanent in statute, but a future Congress can change the number, and clean records of which exemption you’ve used over time are what make the difference if the rules shift again. We’ve seen plenty of folks get tripped up because they didn’t keep a paper trail of “small” transfers, which eventually added up to a significant sum. This is where IRS gift tax regulations and the state-by-state rules become a primary roadmap for our strategy sessions.

Strategic Gifting: More Than Just Cash

From a tax standpoint, gifting isn’t always about writing a check. It’s about timing the transfer of assets that have the potential to appreciate. By gifting shares in a family business or real estate now, you’re removing all future growth of that asset from your taxable estate. The tax case for the move is strong; the investment decision about which assets to gift and when belongs to you and your financial advisor, and the actual transfer documents are an estate attorney’s role. Our part is the tax structuring, the gift tax return (Form 709), the basis tracking, and the ongoing annual compliance.

• Direct Payments: Tuition paid directly to an educational institution and medical expenses paid directly to a provider or insurer are unlimited and don’t count against either the annual exclusion or the lifetime exemption — IRC §2503(e) (26 CFR §25.2503-6). The “directly” part is critical: money given to the student or patient that they then use to pay the bill does not qualify.
• 529 Plans: Front-load five years of contributions in a single year using the gift tax election under IRC §529(c)(2)(B). For 2026, that’s up to $95,000 per beneficiary ($190,000 for a married couple filing jointly) without using any of your lifetime exemption (529 superfunding rules). The 529 plan you choose and how the contributions are invested are decisions to make with a financial advisor; we handle the gift tax election, Form 709 reporting, and the five-year tracking.
• Irrevocable Trusts: Properly structured, an irrevocable trust removes the trust property from your taxable estate while letting you maintain oversight of how it’s used. Common structures include grantor retained annuity trusts (GRATs), spousal lifetime access trusts (SLATs), and irrevocable life insurance trusts (ILITs). The trust documents themselves are drafted by an estate attorney; we work alongside the attorney on the tax structuring, the annual trust returns (Form 1041), and the gift tax reporting at funding.

Natural digressions are part of the process — sometimes a client comes in for inheritance tax advice and we end up talking about their business consulting needs. Everything is connected. If your business isn’t structured correctly, your gifting strategy will probably fall flat anyway. It’s all about that holistic view.

Is Your Legacy Secure?

Is your current plan enough to protect what you’ve built? Or are you leaving things to chance? We don’t like surprises at tax time, and we bet you don’t either. Whether it’s managing gratuitous transfers or navigating the nuances of state-level estate taxes — particularly relevant given Washington’s $3 million threshold and Oregon’s $1 million threshold — the goal is always the same: keep more of your money where it belongs, with your family. Comprehensive estate planning is a team sport. An estate attorney drafts the wills, trusts, and transfer documents. A financial advisor handles the investment allocation and the broader wealth plan. A CPA — that’s us — handles the tax planning, the gift tax compliance, the trust and estate returns, and the year-after-year reporting that keeps the plan working as intended. If you have those professionals already, we’re happy to coordinate with them. If you need referrals, we can make introductions. If you are ready to refine the tax side of your strategy, reach out to us. Visit us at lewisgroupcpas.com/contact/ or give our office a call at (360) 896-8221 to schedule a consultation.