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7 Common Gifting Mistakes That Could Derail Your Estate Plan in Vermont

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Whether you are helping a loved one purchase a home, contributing to a grandchild’s education, or supporting a favorite nonprofit, lifetime gifting can be an impactful way to share your wealth; however, well-intentioned gifts can backfire if made without careful planning. Tax liabilities, valuation errors, and poor coordination with your estate plan are just a few of the issues that can arise. Before giving away significant assets, it is important to understand these common pitfalls. With that in mind, the attorneys at Unsworth LaPlante, PLLC explain seven common gifting mistakes that could derail your estate plan in Vermont.

  1. Improper Valuation of Assets: Gifts of real estate, closely held business interests, or valuable personal property must be accurately valued because an informal guess or outdated estimate can cause problems later, especially if audited by the IRS. Undervaluing assets can lead to penalties, while overvaluing can unnecessarily reduce your exemption. A formal appraisal or professional valuation should be obtained before making substantial gifts of non-cash property. Doing so helps ensure compliance and can protect both the donor and the recipient in the event of scrutiny.
  2. Misunderstanding Federal Gift Tax Rules: Federal law places a limit on how much each taxpayer can gift each year without tax implications. In 2025, the annual exclusion amount is $19,000 per recipient; however, the limit may change annually. Married couples can give $38,000 jointly without needing to file a gift tax return. Exceeding that amount requires filing IRS Form 709, even if the gift does not result in an immediate tax bill. Many people mistakenly believe gifts to relatives or non-cash gifts are exempt, but the IRS evaluates transfers based on fair market value, regardless of relationship. Real estate, art, or a business interest must still be properly valued and disclosed.
  3. Ignoring the Lifetime Exemption Limit: Beyond the annual exclusion, gifts you make during your lifetime reduce your lifetime exemption, which is $13.99 million per person until the end of 2025. Once that amount is used, future gifts, including those made at the time of your death, may be taxed. With the exemption expected to be dramatically reduced beginning in 2026, individuals with large estates should take time to assess their current and future gift strategies. Many people do not realize how quickly the lifetime exemption can be depleted by a series of generous gifts.
  4. Unintended Capital Gains Consequences: When you give away an asset during your lifetime, the recipient inherits your original cost basis. If they sell the asset, they may owe capital gains tax on the appreciation from your purchase price. For instance, giving stock you bought for $25,000 that is now worth $100,000 means the recipient could owe tax on a $75,000 gain. Conversely, if the same stock were passed down through your estate, the cost basis would be adjusted to its fair market value on the date of death, potentially eliminating that tax. The timing and manner of transferring appreciated assets should be weighed carefully to avoid placing a tax burden on loved ones.
  5. Lack of Coordination with Estate Planning Documents: Making substantial gifts without updating your estate plan can lead to confusion and disputes. For example, giving a large sum of money to one child to help buy a home without accounting for that gift in your Will or trust may cause other beneficiaries to feel unfairly treated. This can create tension, or even trigger litigation, after your death. Clearly documenting gifts and aligning them with your overall estate plan helps avoid misunderstandings.
  6. Overlooking Vermont and Other State Laws: While Vermont does not currently impose a gift tax, state-specific rules should still be considered. If you own property in another state, or recently relocated to Vermont, you may still be subject to gift or estate taxes in another jurisdiction. States such as Connecticut have their own gift tax laws, and others impose inheritance or estate taxes with lower thresholds than the federal exemption. Moreover, different states have varying rules about gifting through trusts, LLCs, or joint ownership. What is valid and effective under Vermont law may not be recognized elsewhere. Consulting with a local estate planning attorney who understands multi-state issues is essential for those with assets in more than one jurisdiction.
  7. Gifting Assets That Create Burdens: Not all gifts are welcome or helpful. A timeshare, a building with substantial debt, or a business interest with no liquidity may create more trouble than benefit. The recipient may be left dealing with insurance costs, maintenance obligations, or tax bills they cannot afford. In such cases, using entities like LLCs or limited partnerships can help structure the gift more effectively and reduce complications for the recipient. Consider whether a proposed gift is truly a benefit or a burden before making the transfer.

Can We Help You Avoid Making Common Gifting Mistakes in Vermont?

For more information, please attend one of our upcoming FREE seminars. If you would like assistance to avoid making common gifting mistakes in Vermont, contact an experienced Essex Junction estate planning attorney at Unsworth LaPlante, PLLC by calling 802-879-7133 to schedule your appointment today.

Wendy S. Hillmuth
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