As the holiday season approaches, many people begin reflecting on what they value most—family, legacy, and the opportunity to support loved ones.

For clients with meaningful assets, this often leads to an important estate-planning question: “Should I give assets to my beneficiaries now, or is it better to leave them through my trust later when I pass away?”

The answer depends on your financial goals, the size of your estate, the type of assets you own, the structure of your estate plan, and the long-term needs of both you and your beneficiaries. Below we break down some of the benefits, and things to consider when making a decision about lifetime gifting.

Why You Might Choose to Gift Assets During Your Lifetime

There are several compelling reasons people consider gifting property, money, or valuables while they’re still alive:

1. You get to see the impact of your gift

Many clients enjoy watching their loved ones benefit from a meaningful gift—helping with a home purchase, education, or starting a business. Lifetime gifting allows you to be part of that moment.

2. Potential reduction of your taxable estate

For high-net-worth individuals, lifetime gifts can reduce the size of a taxable estate by using the lifetime credit which in 2026 will be 15 million dollars. For any estate over that amount a lifetime gift is something to consider so that appreciating assets can be removed from your estate during your lifetime to reduce estate taxes after death.  Additionally, anyone can make lifetime gifts to others up to the annual federal gift-tax exclusion amount (currently $19,000 per recipient in 2025 and 2026) without having to file a gift-tax return – or pay tax.

3. Strategic Medicaid or long-term-care planning

Some families engage in planned gifting—well in advance—to help prepare for potential long-term-care needs through qualification for Medicaid benefits. But this must be done carefully: Medicaid has a five-year look-back period for gifts, so consult with a financial advisor and attorney before making this your plan.

4. The ability to transfer certain assets at a lower cost

It may be beneficial to give appreciating investments to loved ones now in order to avoid the imposition of capital gains tax in the future.

Why You Might Not Want to Gift Assets While You’re Alive

While gifting can be meaningful, it does come with important financial and legal considerations.

1. You may unintentionally create a tax burden

Gifts of appreciated assets like stocks or real estate carry over your cost basis, meaning beneficiaries may pay more in capital gains tax if they sell them. By contrast, assets inherited after death through a trust usually receive a step-up in basis, potentially reducing or eliminating capital gains tax.

2. You may need those assets later

Clients often underestimate future expenses, including health care, caregiving, or home modifications. Once a gift is made, it generally cannot be reversed, so you don’t want to give away assets that limit your cash flow needs both now and in the future.

3. Gifting can complicate family dynamics

Even with good intentions, giving unequal gifts can create tension among beneficiaries, especially if the long-term plan isn’t clearly communicated.

4. Trust restrictions may limit what you can give away

If your assets are already held in a trust, your authority to gift them depends entirely on the trust’s structure. Keep reading to learn more on that.

When It Makes Sense to Leave Assets in Your Trust Instead

Leaving assets in trust is often the better option, especially when your goals include long-term protection or structured management. Here’s why:

1. Built-in protection for beneficiaries

Trusts can be structured to protect assets distributed to loved ones from:

• Beneficiaries’ creditors
• Divorce proceedings
• Poor financial decision-making
• Misuse or early depletion
• Disqualification from governmental needs-based assistance

These protections are lost when gifts are distributed outright during life – or outright after death. Consider that you gift your married child a large sum of money, and later that year they and their spouse file for divorce. That money is now potentially subject to marital claims of the spouse and the legal rights they may have in a divorce with your child. Structured properly, funds provided to your loved ones through a trust plan can often be protected from these situations.

2. Tax advantages

As mentioned previously, inherited assets generally receive a step-up in tax basis, which can significantly reduce capital gains tax for your beneficiaries, as opposed to receiving your tax basis in a lifetime gift of stock or real estate.

3. Clear structure, timing, and oversight

A trust allows you to:

• Decide when beneficiaries receive distributions and how they receive them
• Appoint a trustee to manage investment or financial decisions for your beneficiaries
• Structure protections for your spouse and children after your death
• Reduce complexity by consolidating assets

This is particularly helpful for families with real estate, business interests, or complex financial portfolios.

Can You Gift Assets from a Trust While You’re Still Alive?

The short answer is that it depends on the type of trust. Here are a few possible scenarios.

Revocable Living Trusts

Most clients use revocable living trusts. With this type of trust, you remain in full control of the assets while you are alive. That means:

• You are in complete control
• You can add or remove assets from the trust
• You can change beneficiaries or the structure of distributions for beneficiaries
• You can make gifts from the trust if the trust agreement permits those distributions

This flexibility and the avoidance of probate in the local court is one reason revocable trusts are so popular.

Irrevocable Trusts

Irrevocable trusts offer stronger asset protection and estate-tax benefits, but they’re far more restrictive. In most cases:

• The trust—not you—owns the assets and an independent trustee is appointed to manage the assets
• The trust restricts your ability to claw back any assets you have put into the trust
• You cannot gift from an irrevocable trust unless the trust terms explicitly authorize lifetime gifting

Some types of irrevocable trusts, such as Irrevocable Life Insurance Trusts (ILITs) or Medicaid Asset Protection Trusts, do not allow discretionary gifting.

What You Should Do Before Making Lifetime Gifts from a Trust

Before making gifts from any trust, you should:

• Review your financial situation and estate plan with your attorney
• Consider how gifting will affect your long-term priorities and objectives
• Ensure the trustee has legal authority to make the distribution
• Discuss tax implications and reporting requirements with your financial advisor and estate planning attorney.

The rules can be nuanced, and professional guidance from your trusted team is essential to avoid unintended consequences.

How to Decide: Gift Now or Leave It Later?

It’s not a cut and dry scenario, and the answer to the questions will be different for everyone, but here are a few things to consider first:

• Can I comfortably afford the gift without jeopardizing my future needs?
• Does gifting now create unnecessary tax consequences?
• Will my beneficiaries use the gift wisely?
• Does my trust offer protections that would be lost if I gift assets outright during my lifetime or after my death?
• Have the assets I want to gift appreciated in value significantly?
• Does gifting align with my long-term estate and tax planning strategy?

For many clients, a blended approach works well—giving modest, meaningful gifts now while preserving the bulk of the estate during lifetime.

The Bottom Line: The “Best” Choice Depends on Your Goals

Whether to gift assets during your lifetime or distribute them through a trust is a deeply personal decision with financial, tax, and emotional components. What’s right for one family may not be right for another.

Before making gifts, especially during the holiday season, it’s wise to speak with an estate-planning attorney who can help you evaluate your options and ensure that any transfers support your long-term plan.

Davis Law Group regularly assists clients with reviewing trusts, planning lifetime gifts, and structuring their estate plans to protect both their assets and their families. If you’re considering a significant gift this year or want to revisit your trust’s distribution plan, our team is here to help – contact us today.