Many Massachusetts residents are surprised to learn they can reduce their estate tax burden by making annual gifts to family and friends. While estate planning often focuses on Wills and Trusts, annual tax-free gifting is a simple and effective tool that helps reduce the size of your taxable estate while benefiting your loved ones during your lifetime.

What Is the Federal Annual Gift Tax Exclusion?

As of 2025, the IRS allows you to give up to $19,000 per recipient each year without triggering the need to file a gift tax return or use any of your lifetime estate tax exemption. Married couples can give up to $38,000 per recipient annually. Making gifts above these amounts does not mean that you need to pay taxes in the year of the gift, but it does mean that you will need to file a gift tax return and begin to use up your federal estate tax exemption amount. As of the time of this post, this amount is set to increase to $15 million per individual.

Gifts under the above-noted amounts are entirely tax-free under Federal and Massachusetts law and do not require the filing of a gift tax return. If you give more than $19,000 to a single recipient in one calendar year, the excess does count against your lifetime federal gift and estate tax exemption and begins to reduce what you have left.

How Gifting Impacts the Massachusetts Estate Tax

Unlike the federal government, Massachusetts does not have a gift tax. However, Massachusetts does impose an estate tax on estates valued over $2 million (as of 2025). This tax is calculated based on the value of your estate at the time of death after all allowable deductions.

Importantly, gifts made during your lifetime are not included in your Massachusetts estate, provided they are completed gifts and no longer under your control. This means that by making annual exclusion gifts, you can gradually lower the value of your estate and potentially reduce or eliminate your Massachusetts estate tax liability.

Strategic Benefits of Gifting

Making annual exclusion gifts offers several benefits:

• It allows you to reduce your taxable estate incrementally over time.
• Your loved ones receive financial support during your lifetime, when they may need it most.
• You retain full use of your federal lifetime exemption for larger strategic transfers or future planning needs.

Additionally, direct payments made to educational institutions for tuition or to healthcare providers for medical expenses are also tax-free and do not count against the $19,000 annual exclusion. These payments must be made directly to the provider to qualify.

Important Considerations Before Gifting

While gifting is a powerful planning tool, it should be used with caution and coordination:

• Medicaid Planning: If you anticipate needing long-term care, be aware that Massachusetts applies a five-year lookback period when determining Medicaid eligibility. Gifts made within five years of applying for Medicaid can affect your eligibility.
• Tax Basis Concerns: Assets given during life carry over your original cost basis, which can lead to capital gains tax if the recipient sells the asset. In contrast, assets inherited at death receive a step-up in basis. In other words, the basis is the value of the asset at the date of your death compared to what you originally paid for the asset.
• Loss of Control: Once a gift is made, it generally cannot be reversed. Be sure you are financially secure before transferring significant assets.

Gifting as Part of Your Estate Plan

Annual gifting typically should not be done in isolation. Instead, it should be integrated into your broader estate plan. Whether your plan includes a Will, Trust, Power of Attorney, or Irrevocable Medicaid Asset Protection Trust, it’s important to ensure your gifting strategy aligns with your long-term financial and legacy goals.

Our Massachusetts estate planning lawyers can help you:

• Evaluate the impact of gifting on your estate tax exposure.
• Avoid common pitfalls related to tax and Medicaid planning.
• Coordinate gifts with other estate planning tools for a comprehensive strategy.

Start Planning Today

Annual tax-free gifting is one of the most effective and underused tools available to reduce your Massachusetts estate tax (and Federal estate tax). By starting early and giving intentionally, you can protect more of your legacy and support the people who matter most.

At Silveri + Wilson, we help Massachusetts families design thoughtful estate plans that reflect their values and financial goals. Let us show you how gifting can work for you.

We’re here to help. Call us today at (978) 767-8540 to schedule a consultation.