While the lifetime exemption considers the total amount of all gifts made throughout your lifetime or at the time of your death, another beneficial tax avoidance option may be used yearly and is available to you at all times. Because of the annual gift tax exemption, each taxpayer can provide taxable gifts to an unlimited number of beneficiaries each year without incurring any gift tax liability. The value of these donations will not be deducted from the lifetime exemption that you have available.
2025 Gift Tax Exemption Update
The lifetime estate and gift tax exemption is set to increase to $13.99 million in 2025. However, under existing law, this exemption will be reduced by half starting in 2026, unless Congress takes action to extend it. This means that taxpayers who want to take advantage of the current high exemption limit should consider estate planning strategies before the end of 2025.
Additionally, any taxable gifts exceeding the annual exclusion amount will count against the lifetime exemption. A gift tax return must be filed by April 15 of the following year to report such gifts and track the amount of the lifetime exemption used.
Annual Gift Tax Exclusion Limits
For 2023, the annual gift tax exclusion increased from $16,000 to $17,000 per recipient. Married couples can combine their individual exclusions, allowing them to gift up to $34,000 per recipient without impacting their lifetime exemption. While official figures for 2025 have not yet been released, these limits typically adjust for inflation annually.
Strategic Gifting Example
Consider the following scenario: A married couple has four grown children and six grandchildren. Each of their children and grandchildren can receive up to $34,000 per year (as of 2023). This amounts to a total of $340,000 in assets transferred tax-free in a single year. Over ten years, they could gift $3.4 million without using any of their lifetime exemption, significantly reducing the taxable value of their estate.
Act Now Before the 2026 Reduction
Since the current lifetime estate and gift tax exemption is set to drop by 50% in 2026, individuals with significant assets should act before the end of 2025 to maximize their tax planning strategies. Consulting with an experienced estate planning attorney can help ensure that you make the most of these exemptions before they change.
Ask an Estate Planning Attorney Today
Don’t hesitate to reach out if you need professional guidance on your estate plan. Visit Hudack Law Estate Planning Attorney to learn more about our services in California, Utah, and Arizona. Call our toll-free at (877) 314-4309 to schedule a consultation with one of our experienced attorneys.