Summary: The IRS has announced that in 2025, the Lifetime Estate and Gift Tax Exemption (the “Lifetime Exemption”) will rise to $13,990,000 (from $13,610,000); the Annual Gift Exclusion will rise to $19,000 (from $18,000) and the Annual Gift Exemption for gifts to non-U.S. citizen spouses will rise to $190,000 (from $185,000).
Impact: These increases will allow taxpayers to transfer even more wealth next year, helping to reduce their tax burden, support loved ones and plan for the future. Clients and their advisors should consider implementing strategies to effectively leverage these exemptions in light of the Lifetime Exemption’s planned sunset in tax year 2026, when it is set to be halved.
Lifetime Estate and Gift Tax Exemption: The Lifetime Exemption is the maximum value of assets a person can leave to others upon their death or gift to others during their life without incurring federal taxes. Gifts made in excess of a person’s annual gift tax exclusion (discussed below) will require filing a gift tax return with the IRS and will use a portion of their Lifetime Exemption. The use of a person’s Lifetime Exemption during their lifetime will reduce the amount they may leave at death without incurring federal estate tax.
In 2017, the Tax Cuts and Jobs Act doubled the Lifetime Exemption from $5 million to $10 million indexed for inflation. Because this number is pegged to inflation, it changes from year to year. The eye-popping inflation we’ve experienced over the past few years has caused this number to rise from the original $10 million to $13.99 million. This means that in 2025, a married couple can effectively transfer $27.98 million of wealth without incurring federal estate or gift tax. Again, it’s important to note the Lifetime Exemption is set to be reduced in 2026 to pre-2017 levels ($5 million indexed for inflation).
Annual Gift Tax Exclusion: Each year, people are permitted to gift a certain amount for any person without using their Lifetime Exemption, referred to as the “Annual Gift Tax Exclusion.” This amount is set at $19,000 for 2025. This exclusion is doubled for married couples, which means a married couple can gift $38,000 per donee in 2025 without using any portion of their Lifetime Exemption.
As an example, if a married couple has 2 children and 8 grandchildren, they are permitted to transfer $38,000 to each child and grandchild without using their Lifetime Exemption. That can add up to $380,000 that can be transferred tax free per year!
Jesse Frost is an associate in Twomey Latham’s Trusts and Estates department. This publication is for general information purposes only and is not legal advice. The author of this article is available to discuss the contents of this article at your convenience.
