Making gifts while you are still alive can be a powerful – and enjoyable – way to pass along wealth. Paying for a grandchild’s education or providing a downpayment so your adult child can purchase a home, for example, allows you to experience the benefits your gift brings first-hand. Although gifts made during your lifetime are undoubtedly made with the best of intentions, these gifts can trigger some unintended negative consequences when they are made without considering them within the broader context of your overall estate plan. To help you avoid these unintended consequences, an attorney at Thompson Law shares 10 mistakes to avoid when making gifts in your North Dakota estate plan.
Top 10 Gift Mistakes
Gifting during your lifetime can be a meaningful and tangible way to express your love and support. At the same time, lifetime gifting requires thoughtful planning and coordination with your overall estate plan to avoid costly mistakes, such as:
- Misunderstanding Federal Gift Tax Regulations. Each year, the IRS sets a limit on how much you can gift to a beneficiary (including individuals, charities, or trusts) without triggering reporting requirements. For 2025, that annual exclusion is $19,000 per recipient. Married couples may give up to $38,000 jointly without filing a gift tax return. Exceeding the annual exclusion requires submitting IRS Form 709, even if no tax is owed. Common misconceptions include the belief that gifts to family or non-cash gifts are exempt from reporting, but all gifts are subject to fair market value assessments. The good news, however, is that you have make gifts using the yearly exclusion to an unlimited number of beneficiaries every year
- Overlooking the Use of Trusts for Strategic Gifting. Trusts are often underutilized as gifting vehicles. For those with significant assets, irrevocable trusts can provide a structured way to transfer wealth while maintaining some control and protecting beneficiaries. Trusts can offer creditor protection, tax benefits, and continuity of asset management. Whether for educational expenses, charitable gifts, or the long-term support of a loved one, using a properly drafted trust can make your gifting more efficient and less risky. The same trust can also allow you to make gifts both while you are alive and after you are gone.
- Failing to Properly Value Non-Cash Assets. When gifting real estate, business interests, or valuable personal property, guessing at the value can create problems down the road. While the Internal Revenue Service (IRS) requires fair market value assessments, inaccurate valuations can result in either penalties for underreporting or wasted exemptions due to overvaluation. Engaging a professional appraiser before completing the transfer of non-cash assets helps ensure accuracy and supports compliance in the event of an audit.
- Failing to Consider North Dakota and Other State Laws. While North Dakota does not currently impose an inheritance tax or a state-level gift tax, several other states do impose either or both taxes. Minnesota, for example, does collect estate taxes. If you ultimately pass away as a resident of a state that imposes estate taxes, or you gift property to a beneficiary that lives in a state that collects inheritance taxes, the tax implications can be significant. Moreover, state laws can also differ regarding trusts, LLCs, and other legal tools used for gifting. Consulting an estate planning attorney familiar with multi-state planning is vital to ensure that you understand the tax ramifications of gifting.
- Neglecting the Impact on the Lifetime Gift and Estate Tax Exemption. Beyond the annual exclusion, larger gifts count against your lifetime gift and estate tax exemption, currently set at $13.99 million per individual through the end of 2025; however, the exemption is expected to drop significantly in 2026. Failing to account for this reduction can lead to a much higher estate tax liability down the road. Donors with significant assets should evaluate how much of their exemption they have already used and plan accordingly.
- Overlooking Capital Gains Tax Implications. Gifting appreciated assets such as stock or real estate during your lifetime transfers your original cost basis to the recipient. This means that when the recipient sells the asset, they may face capital gains taxes on the increase in value from your original purchase price. For example, if you bought stocks 10 years ago for $15,000 that are now worth $100,000, the recipient could be liable for taxes on an $85,000 gain. If the same shares were passed through your estate, however, the cost basis would likely be adjusted to the date-of-death value, potentially reducing or eliminating the capital gains liability.
- Not Updating Your Estate Plan to Reflect Major Gifts. Making large gifts without updating your Will or trust documents can lead to inconsistencies and perceived favoritism. If you gift one child money for a house and do not record this in your estate plan, other heirs might feel shortchanged. This could give rise to disputes or even litigation. Aligning your estate planning documents with your gifting activity creates transparency and helps avoid future conflict.
- Failing to Clearly Document Gifts. Verbal promises or informal agreements about gifts can lead to confusion or disputes among family members. For example, stating that a piece of land is being “gifted” to a child without properly transferring title or documenting the gift can result in legal ambiguity. Always ensure that gifts are recorded in writing, especially when dealing with valuable or complex assets. Gift letters, deeds, and amended estate documents can provide clarity and prevent future conflict.
- Making Gifts of Assets That Become a Burden to the Recipient. It is crucial to understand that not every asset is a welcome gift. Properties with significant debt, maintenance obligations, or high insurance costs can end up being a financial hardship instead of a welcome gift. Timeshares, underperforming business interests, or outdated rental properties may be more trouble than they are worth. Structuring such gifts through an entity like an LLC or limited partnership can help mitigate these challenges and allow the recipient to manage the asset more effectively.
- Disregarding the Recipient’s Financial Situation. While the intention behind a gift may be generous, it is important to consider the recipient’s financial situation as well. For example, gifting an income-generating rental property to a loved one who is unprepared to manage tenants or property upkeep may create stress or financial risk. Similarly, giving a business to someone lacking the skill or interest to run it could lead to the business failing and could even become a financial burden on the beneficiary. To avoid this mistake, be sure to evaluate whether the recipient is in a position to manage and benefit from the gift – and make sure that they want the gift before deciding to make the gift.
Can We Help You Avoid Making Mistakes When You Make Gifts in North Dakota
Please join us for an upcoming FREE seminar or webinar. If you have additional questions or concerns about how to avoid making mistakes when you make gifts within your North Dakota estate plan, contact a North Dakota estate planning attorney at Thompson Law by calling 605-362-9100 to schedule an appointment.
Raymond J. German provides a wide range of estate planning services to his clients, with a primary focus on creating peace of mind providing for the security of their loved ones, reducing taxes and avoiding a probate, all with a well-crafted estate plan. Mr. German defines the mission statement for Thompson Law as “Helping one family at a time pass on values, beliefs and finances, that can be shared for generations to come.” Read More
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