Feb 26

Why an Attorney Should Prepare Your Texas Estate Gift Tax Returns

Let’s be honest, most people do not spend their free time thinking about gift tax returns. You give your daughter money for a house down payment, help a grandchild with college tuition, or transfer a piece of family property, and you assume everything is fine. In many cases, it is. But when the value of those gifts crosses certain federal thresholds, the IRS expects you to file a return. And getting that return wrong can create headaches that ripple through your estate plan for years.

Here in Texas, we are fortunate that the state does not impose its own gift tax or estate tax. However, federal gift tax rules still apply to every Texan who makes significant transfers of wealth during their lifetime. That is where IRS Form 709—the United States Gift (and Generation-Skipping Transfer) Tax Return—comes into the picture.

At Hardie Alcozer, we believe legal services do not have to be complicated or intimidating. We also believe that something as important as reporting your gifts to the IRS should not be treated as an afterthought. Working with an attorney to prepare your estate gift tax returns is one of the smartest moves you can make to protect both your wealth and your family’s future.

Understanding the Federal Gift Tax Return and How It Works

Think of the gift tax return as the IRS’s way of keeping a running tab on how much wealth you transfer during your lifetime. It is not necessarily about paying tax right now. In fact, most people who file Form 709 do not owe a single dollar in gift tax. The form is really about tracking your gifts against your lifetime exemption so the IRS can accurately assess your estate when the time comes.

For the 2025 tax year, the annual gift tax exclusion is $19,000 per recipient. That means you can give up to $19,000 to as many individual people as you want without needing to file anything with the IRS. Married couples can combine their exclusions, allowing them to give up to $38,000 per recipient through a process called gift-splitting.

If you give more than $19,000 to any single person in a calendar year, the excess amount gets reported on Form 709. It does not mean you owe taxes—it simply reduces your lifetime gift and estate tax exemption. For 2025, that lifetime exemption is $13.99 million per individual. Thanks to the One Big Beautiful Bill Act signed into law in July 2025, the exemption increases to $15 million per individual beginning in 2026 and will continue to be adjusted for inflation going forward.

When Do You Need to File Form 709?

You may be required to file a federal gift tax return if you gave more than $19,000 to any one person in a calendar year (other than your U.S. citizen spouse), you and your spouse want to split gifts regardless of the amount given, you made gifts of future interests such as contributions to certain irrevocable trusts, or you made a generation-skipping transfer that passes assets to someone two or more generations below you. On the other hand, you generally do not need to file for gifts to your U.S. citizen spouse, direct payments to educational institutions for tuition, direct payments to medical providers for someone’s care, gifts to qualifying charitable organizations, or gifts to political organizations.

The filing deadline for Form 709 is April 15 of the year following the gift. If you file for an extension on your individual income tax return, that extension automatically applies to your gift tax return as well.

Why an Attorney Should Handle Your Gift Tax Returns

You might be wondering why you would involve a lawyer in what seems like a tax filing issue. After all, could your accountant not handle this? A CPA certainly plays an important role in tax preparation, and many estate plans benefit from a team approach where attorneys and CPAs work together. But gift tax returns involve legal decisions and strategic planning that go well beyond plugging numbers into a form.

Properly Valuing Complex Assets

When you gift cash, determining the value is straightforward. But many Texas families transfer assets that are far more complicated to value—real estate, interests in family businesses, oil and gas royalties, investment portfolios, or ranch land. The IRS requires you to report the fair market value of a gift on the date it was transferred. Getting that number wrong can trigger penalties or cause the IRS to revalue the gift later, creating unexpected tax consequences.

A substantial valuation understatement occurs when the reported value on Form 709 is 65 percent or less of the actual value of the property. A gross valuation understatement happens when the reported value is 40 percent or less. Both can result in penalties. An attorney experienced in estate planning understands how to coordinate qualified appraisals, apply appropriate valuation discounts where legally permitted, and present the information in a way that satisfies IRS disclosure requirements.

Coordinating Gift-Splitting Between Spouses

Texas is a community property state, and that adds a layer of nuance to gift tax planning. When married couples elect to split gifts, each spouse must generally file their own Form 709. The election applies to all gifts made during the calendar year—not just specific ones. This means that deciding to split one gift obligates you to split every gift made that year. An attorney helps you understand whether gift-splitting actually benefits your situation or whether it could create unintended consequences, especially in blended family scenarios.

Protecting Your Lifetime Exemption

Your lifetime gift and estate tax exemption is a shared resource. Every dollar you use for gifting during your life reduces the amount available to shield your estate from federal estate tax after you pass away. Proper tracking of how much exemption you have used is critical, and errors on earlier gift tax returns can compound over time.

An attorney ensures that each gift tax return accurately reflects your cumulative gifts and remaining exemption. This is especially important if you have made gifts in prior years, because the calculation of whether any gift tax is due in a given year depends on the total value of all prior reported gifts.

Starting the Statute of Limitations Through Adequate Disclosure

This is one of the most important and often overlooked reasons to have an attorney prepare your gift tax return. The IRS generally has three years from the filing of a gift tax return to assess a deficiency—but only if the gift is adequately disclosed on the return. Once that three-year window closes, the IRS cannot go back and revalue that gift for any purpose, including for calculating estate taxes after your death.

Adequate disclosure requires providing a detailed description of the transferred property, the method used to determine fair market value, and any relevant appraisals or documentation. An attorney knows exactly what the IRS considers sufficient to start that statute of limitations clock running, and that knowledge can save your estate significant money down the road.

Managing Generation-Skipping Transfer Tax Elections

If you are making gifts to grandchildren or to trusts that could benefit grandchildren, the generation-skipping transfer (GST) tax may come into play. The GST tax is a separate tax on top of the gift tax, and it applies when assets skip a generation. Proper allocation of your GST exemption on Form 709 is essential. Failing to make the right elections can result in wasted exemption or unexpected tax exposure.

Certain gifts trigger automatic allocation of GST exemption, while others require an affirmative election on the return. An attorney understands when to opt in and when to opt out of automatic allocation, ensuring your exemption is used strategically rather than accidentally.

What Texas Residents Should Know About Gift Tax Returns

Texas does not impose a state-level gift tax, estate tax, or inheritance tax. That is good news for Texas families, but it does not mean you can ignore federal requirements. Since the federal gift tax applies uniformly across all states, Texas residents still need to file Form 709 whenever their gifts exceed the annual exclusion.

There are a few Texas-specific considerations that make attorney involvement particularly valuable. As a community property state, Texas treats most assets acquired during marriage as owned equally by both spouses. This can affect how gifts are characterized and reported. For example, a gift made from community property may already be considered a joint gift, which changes the filing analysis.

Additionally, many Texas families hold assets like ranch land, mineral rights, oil and gas interests, or closely held business interests. These assets require careful valuation and often benefit from valuation discounts for lack of marketability or minority interest positions. An attorney who understands both Texas property law and federal tax requirements can ensure these assets are reported correctly on your gift tax return.

Common Mistakes That an Attorney Can Help You Avoid

Gift tax returns may seem straightforward on the surface, but they involve a surprising number of pitfalls. Here are some of the most common mistakes we see.

Not filing when required. Some people assume that because they will not owe gift tax, they do not need to file. That is not how it works. If your gifts exceed the annual exclusion, you must file Form 709 to report them, even if no tax is owed. Failure to file means the statute of limitations never starts running on that gift, leaving it open to IRS scrutiny indefinitely.

Forgetting about indirect gifts. Adding someone to the title of real property or a bank account can constitute a taxable gift. Below-market interest rate loans between family members may also be treated as gifts. Many people do not realize these transactions trigger reporting requirements.

Misunderstanding the educational and medical exclusions. Payments for tuition and medical expenses are excluded from the gift tax—but only if you pay the institution or provider directly. Writing a check to your grandchild to reimburse them for tuition does not qualify for the exclusion and counts as a regular gift.

Overlooking portability elections. When a spouse passes away, the surviving spouse can claim the deceased spouse’s unused estate tax exemption through portability. However, this requires a timely filed estate tax return (Form 706). If the surviving spouse later makes gifts and relies on that portable exemption without having properly elected it, the results can be financially devastating.

How Gift Tax Returns Fit Into Your Broader Estate Plan

A gift tax return is not a standalone document. It is part of a bigger picture that includes your will, any trusts you have established, your overall wealth transfer strategy, and your goals for your family. When an attorney prepares your Form 709, they are thinking about how each reported gift interacts with the rest of your plan.

For example, if you are making annual gifts to reduce the size of your taxable estate, an attorney ensures those gifts are structured to maximize the benefit without accidentally disqualifying other elements of your plan. If you are funding an irrevocable trust, the attorney coordinates the gift tax return with the trust document to ensure proper GST elections are made and the trust achieves its intended tax treatment.

An important concept to keep in mind is the difference between the tax basis of gifted assets and inherited assets. When you give someone an asset during your lifetime, they receive your original cost basis—known as a carryover basis. When someone inherits an asset after your death, they generally receive a stepped-up basis equal to the fair market value at the time of death. This distinction can have significant tax consequences when the recipient eventually sells the asset, and it is a factor your attorney considers when advising on whether and how to make gifts.

Let Hardie Alcozer Guide You Through the Process

Filing a gift tax return does not have to feel overwhelming. At Hardie Alcozer, we take the complexity out of the process and help you understand your options and obligations in plain language. We work with you to ensure your gifts are properly reported, your exemptions are strategically managed, and your estate plan stays on track.

Whether you have already made significant gifts and need help with your filing, or you are planning future transfers and want to make sure you do it right from the start, our team is here to help. We collaborate with your financial advisors and CPAs to provide coordinated, comprehensive guidance—because your estate plan deserves that level of attention.

Call us at (512) 374-4922 or email hello@hardiealcozer.com to schedule a consultation. We will walk you through every step so you can feel confident, supported, and in control of your financial future.