A client sat in my Manhattan office last week with a familiar goal. His daughter, a teacher, was trying to buy her first apartment in Brooklyn, and he wanted to help with the down payment. “If I give her $100,000,” he asked, “does she have to report that as income or pay tax on it?”
This is one of the most common questions I hear. The impulse to provide for the next generation is powerful, but clients worry that a generous gesture might create an unexpected tax bill for their children. The answer, in most cases, is no. The recipient of a gift almost never pays tax on it. The framework of gift taxation—both federal and state—is focused on the giver, not the receiver.
Understanding this framework is the first step in being a prudent steward of your family’s legacy. It allows you to be generous with intention, not apprehension.
The Federal Framework: Annual and Lifetime Exemptions
The Internal Revenue Service (IRS) establishes two primary shields against gift taxes.
First is the annual gift tax exclusion. This is a specific dollar amount you can give to any single individual in a calendar year without tax consequences or reporting requirements. For 2024, that amount is $18,000. It is indexed for inflation and rises periodically—in 2022, for example, it was $16,000. You can give up to this amount to as many people as you wish. If you have three children and five grandchildren, you can give each of them $18,000 this year for a total of $144,000 without needing to file a gift tax return.
Second is the lifetime gift and estate tax exemption. This is a much larger, unified credit covering the taxable gifts you make during your life and the value of the estate you leave at death. For 2024, this federal exemption is $13.61 million per person. When you give a gift to an individual that is over the annual exclusion amount, you must file a gift tax return (Form 709). You typically will not pay any tax at that moment. Instead, the excess amount of the gift is subtracted from your lifetime exemption total.
For my client wanting to give his daughter $100,000, the math is straightforward. The first $18,000 is covered by the 2024 annual exclusion. The remaining $82,000 would be reported on a gift tax return and would reduce his $13.61 million lifetime exemption to $13,528,000. No tax would be due.
Where New York State Law Comes Into Play
While the gift tax itself is a federal matter, New York has its own estate tax with a significantly lower exemption—$6.94 million as of 2024. This is where many people encounter problems. They make large gifts, correctly assuming no federal tax is due, but fail to consider the impact on their New York estate tax liability.
New York has what is often called an estate tax “clawback” provision. Under New York Tax Law § 954(a)(3), the state adds certain taxable gifts made within three years of your death back into the total value of your estate. The purpose is to prevent individuals from giving away all their assets on their deathbed to avoid state estate tax.
This creates a critical planning consideration. A large gift that was tax-free at the federal level could, if made within three years of death, push your estate’s value over the New York exemption threshold. This can trigger a surprisingly large state tax bill for your heirs. This detail requires careful, forward-looking analysis.
Gifting as a Deliberate Part of Your Plan
Beyond writing checks, there are other deliberate ways to structure your generosity that align with your legacy goals and the tax code.
Two powerful exceptions to the gift tax rules are direct payments for education and medical expenses. If you pay a university directly for your grandchild’s tuition or a hospital for a family member’s medical care, those payments are not considered taxable gifts. The amount is unlimited and does not count against your annual exclusion or your lifetime exemption. The payment must be made directly to the institution—not to the person you are helping.
Married couples can also combine their annual exclusions through “gift splitting.” Together, a couple can give up to $36,000 ($18,000 each) to any single individual in 2024 without dipping into their lifetime exemptions. This is a simple but effective way for partners to double their gifting capacity and support the next generation.
Generosity should be a source of connection, not confusion. Understanding these rules is fundamental to ensuring your financial decisions achieve their intended purpose for your family.
The first step in any significant gifting plan is not to write the check, but to understand its place in your broader estate plan. If you are considering substantial gifts, we can begin by documenting a clear history of your major transfers. This analysis establishes an accurate picture of your remaining lifetime exemption and forms the foundation for any prudent future strategy.
