Gifting is often promoted as a simple way to reduce future estate taxes — and in Washington, where the state estate tax exemption is $3 million per person beginning July 1, 2025, that advice can sound appealing. But gifting without strategy can create unintended tax consequences, especially when appreciated assets are involved. To avoid these consequences, it is recommended that you have an Issaquah, WA estate planning lawyer review your existing estate plan or help you create one.
At Eastside Estate Planning, we help clients understand when gifting makes sense — and when it may cost more in capital gains tax than it saves in estate tax.
Why Some Washington Families Consider Gifting
Gifting during life can be useful when structured correctly. It may:
- Reduce your Washington estate tax exposure if your assets are likely to exceed $3 million per person.
- Move future asset appreciation out of your taxable estate.
- Allow you to see your loved ones benefit now, rather than only through inheritance.
- Shift small assets using the annual exclusion gift amount (currently $19,000 per person per year in 2025).
But Gifting Appreciated Assets Can Trigger Capital Gains Problems
Here’s the part many people don’t hear:
When you gift an appreciated asset during life, the recipient inherits your original cost basis — not a stepped-up value.
Example:
- You bought an asset for $50,000.
- It’s now worth $200,000.
- If you gift it now, your child takes your $50,000 basis.
- If they sell, they pay capital gains tax on $150,000.
- If you keep it and pass it at death, the value is stepped up to $200,000.
- If they sell, they may owe little or no capital gains tax.
Result:
Good for estate tax reduction? Maybe.
Bad for capital gains tax planning? Possibly very.
Washington’s Estate Tax — Why Strategy Matters
Washington’s estate tax exemption will be $3 million per person starting July 1, 2025, but unlike federal law, Washington does not allow portability between spouses.
This means:
- If one spouse dies and everything passes outright to the survivor, the first spouse’s $3 million exemption is lost completely.
- To preserve both spouse exemptions, a trust-based plan must be used — gifting alone will not solve this.
So while gifting can reduce estate tax exposure, it should be part of a coordinated estate tax strategy, not a one-off transfer.
When Gifting May Be Helpful
Gifting may be appropriate when:
- You have a Washington-taxable estate above $3 million.
- You want to shift future growth of an asset to beneficiaries.
- You are using cash or low-basis-risk assets.
- You have a trust plan already in place to preserve exemptions.
- You want to gradually transfer assets for business succession or family property stewardship.
When Gifting Could Be Harmful
Gifting may create problems when:
- The asset has large built-in capital gains.
- You’re gifting real estate or investment accounts without reviewing basis.
- You don’t have a trust plan in place to preserve both spouse exemptions.
- Medicaid eligibility, estate tax, and capital gains tax are not coordinated together.
- The gift is being made simply because someone said, “You should start gifting to save taxes.”
The Takeaway — Gifting Is A Tool, Not A Strategy By Itself
Gifting can be highly effective for the right client at the right time — but it can also create unnecessary tax burdens if done without proper planning. The key is not whether to gift — it’s what to gift, when to gift, and how it fits into your full estate plan.
Before You Gift — Let’s Run The Numbers Together
We help Washington families:
- Evaluate whether gifting is fiscally beneficial or tax-negative.
- Preserve both spouse exemptions through strategic trust planning.
- Identify which assets make sense to gift — and which should be held to secure a stepped-up tax basis.
- Avoid unintended estate or capital gains tax consequences.
Thinking about gifting to children or transferring assets during life? Talk to Eastside Estate Planning first — a quick review can prevent costly mistakes. We offer free phone consultations and flat-fee packages. Reach out to us today or whenever you are ready to discuss your estate planning needs.
