For many farm and ranch families, bringing children or grandchildren into the operation is the ultimate goal. Successfully bringing additional family members into the operation may require some creativity as all parties need to maintain a viable standard of living. This article is part of a series that will highlight ideas and tactics for bringing another family member into the operation. If this is the first article you are seeing in this series, I would encourage you to go back to the previous article for background and additional guidance.

The second tactic to transfer wealth between generations is gifting. The U.S. tax code has two main laws that apply to gifting: the annual gift tax exclusion and the gift and estate tax basic exclusion amount.” In this article, the person gifting assets is going to be called the donor, and the person receiving the gift is going to be called the donee.

Each year the IRS releases the annual gift tax exclusion amount. The annual gift tax exclusion is the amount of assets that can be gifted from the donor to a donee, without reporting the gift to the IRS. The annual gift tax exclusion applies to anyone, the parties do not have to be related. In 2024, a donor can gift $18,000 to a donee. The limit is per donee. In other words, the donor can gift up to $18,000 per year to as many donees as they want.

The second law is the lifetime gift and estate tax basic exemption amount. Any gift over the annual gift tax exemption — $18,000 — must be reported to the IRS and is then accumulated toward the donor’s lifetime gift and estate tax basic exemption amount. In 2024, this limit is $13.61 million. This means that a donor could gift more than the annual exemption to a donee in a single year, without paying gift tax. Estate or gift tax applies when the cumulative lifetime gifts to all donees and taxable assets passed through the estate are above estate tax basic exclusion amount.

There are some exceptions to these gifting rules. First, spouses can gift each other an unlimited amount, as long as they are U.S. citizens. The second exception is that a donor can pay qualified medical or education expenses to an institution on a donee's behalf, without it counting toward these amounts.

If you are thinking of gifting as a strategy to provide a viable standard of living for a family member, there are several points to consider.

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