Many people assume that the “gift tax” is just a tax automatically applied to gifts exceeding a certain amount ($15,000 as of 2021). So if you’re considering forking over $25,000 to help with a grandkid’s college expenses or destination wedding, you may think twice – after all, why should the IRS get a piece of your generosity?
But hold on, because this perception of the gift tax is actually false!
First of all, gifts in excess of $15,000 may not be taxed at all – they just need to be disclosed.
Second, and more importantly, while you could pay gift taxes on any gift over the qualified amount, you also have the option to instead put the gift toward your “lifetime exclusion amount” – up to a whopping $11.7 million.
Woah, ok but… what does that mean?
After you die, but before your estate passes to your heirs, the government taxes whatever portion of your estate exceeds the Estate Tax Exemption threshold – which is currently set at a that $11.7 million figure, though that won’t last forever. So if you died tomorrow with $12 million left to your heirs, only $300,000 would be subject to the estate tax.

Here’s the neat part: instead of paying tax on any monetary gifts you make in excess of $15,000, you can designate them as going toward your lifetime exclusion amount! This means they’ll whittle away at the total taxable portion of your estate, and free up more of it to go directly to your heirs after you die.
In other words, if you can afford it, why not put that $25,000 toward your grandkids’ college? It’s $10,000 more that’s helping your loved ones now, and $10,000 less that will be taxed in the future. A pretty sweet (if counterintuitive) deal all around.
– Graham