Mallory Vincent, CPA and Colby Ryan •
What is the Estate and Gift Tax Exclusion? The Estate and Gift Tax Exclusion sets the threshold at which estates and individuals begin paying federal taxes based on their net worth and gifts given to others. This means estates do not pay federal taxes until they exceed this total value of all of their assets.
What is the Estate and Gift Tax Exclusion? The Estate and Gift Tax Exclusion sets the threshold at which estates and individuals begin paying federal taxes based on their net worth and gifts given to others. This means estates do not pay federal taxes until they exceed this total value of all of their assets.
The gift tax exclusion has two components: the lifetime exclusion and the annual exclusion. The lifetime gift exclusion allows taxpayers to gift up to $13.61 million, or $27.22 million for married couples, over their lifetime without paying federal taxes. The annual gift exclusion permits taxpayers to gift up to $18,000, or $36,000 (in 2024) for married couples, per year without needing to file a gift tax return. Importantly, these exclusions are “unified,” meaning any amount used under the lifetime exclusion reduces the amount available for the federal estate tax exclusion. For example, if a taxpayer uses $1 million of the lifetime gift tax exclusion, their estate exclusion is reduced to $12.61 million. In 2025, both the lifetime and annual gift exclusions are projected to increase to $14.16 million and $19,000, respectively.
What does it mean for the exclusions to “sunset?” On December 31, 2025, the Tax Cuts and Jobs Act is set to “sunset,” or expire, unless Congress chooses to extend it or make it permanent. If the Act sunsets, the estate and gift tax exclusions, along with many other provisions, will revert to their 2017 levels. Adjusted for inflation, the estate and lifetime gift exclusions will decrease to approximately $7 million for individuals and $14 million for married couples.
Who will this impact? This change will primarily affect individuals with estates that are likely to become taxable in the future. Some states also have their own estate taxes, which will influence who is impacted. Beginning in 2026, estates exceeding the exclusion thresholds will be subject an estate tax rate of 45%.
What can you do now? There are three key factors to consider in light of this potential change: estate planning, gifting strategies, and the use of trusts. First, you will want to review your current estate plan with an attorney, and if necessary, consult with a specialized estate-planning attorney to make any necessary adjustments. Next, consider using gifting strategies to take advantage of the current higher gift tax exclusion. The Internal Revenue Service has stated, “individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.” If your estate is currently within the exclusion limit but may exceed it after the sunset, now is the time to minimize potential tax liability and maximize the benefits of the higher exclusion by moving assets out of your estate. Finally, trusts offer a way to transfer assets while still retaining control over them. Although this strategy does not eliminate tax liability, it can help avoid the high 45% tax rate that will apply to estates starting in 2026.
As always, our team at Mason + Rich is ready to answer any additional questions. Feel free to contact us and follow us on LinkedIn to stay up-to-date on all of our posts.
What does it mean for the exclusions to “sunset?” On December 31, 2025, the Tax Cuts and Jobs Act is set to “sunset,” or expire, unless Congress chooses to extend it or make it permanent. If the Act sunsets, the estate and gift tax exclusions, along with many other provisions, will revert to their 2017 levels. Adjusted for inflation, the estate and lifetime gift exclusions will decrease to approximately $7 million for individuals and $14 million for married couples.
Who will this impact? This change will primarily affect individuals with estates that are likely to become taxable in the future. Some states also have their own estate taxes, which will influence who is impacted. Beginning in 2026, estates exceeding the exclusion thresholds will be subject an estate tax rate of 45%.
What can you do now? There are three key factors to consider in light of this potential change: estate planning, gifting strategies, and the use of trusts. First, you will want to review your current estate plan with an attorney, and if necessary, consult with a specialized estate-planning attorney to make any necessary adjustments. Next, consider using gifting strategies to take advantage of the current higher gift tax exclusion. The Internal Revenue Service has stated, “individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels.” If your estate is currently within the exclusion limit but may exceed it after the sunset, now is the time to minimize potential tax liability and maximize the benefits of the higher exclusion by moving assets out of your estate. Finally, trusts offer a way to transfer assets while still retaining control over them. Although this strategy does not eliminate tax liability, it can help avoid the high 45% tax rate that will apply to estates starting in 2026.
As always, our team at Mason + Rich is ready to answer any additional questions. Feel free to contact us and follow us on LinkedIn to stay up-to-date on all of our posts.
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