Estate PlanningTax Planning

Understanding the Changes in Federal Gift and Estate Tax Exemptions for 2025

2025 Gift and Estate Tax Exemptions

The federal gift and estate tax exemptions, along with annual exclusion amounts, are key considerations for individuals planning their estates and managing wealth transfers. Recent updates and the potential sunset in 2025 of favorable tax provisions make it essential for individuals and families to revisit their current estate planning strategies. Here’s what you need to know.

  • Current Exemption Levels

For 2025, the federal gift and estate tax exemption is historically high, allowing individuals to shield up to $13.99 million (or $27.98 million for married couples) of wealth transfers during lifetime or at death from federal estate and gift taxes. These elevated thresholds are part of the Tax Cuts and Jobs Act (TCJA) originally enacted in 2017, which significantly increased exemption amounts.

In addition to the exemption amount, the 2025 annual gift tax exclusion allows individuals to give up to $19,000 per recipient per year without using their lifetime exemption or incurring gift tax. The annual exclusion is a great way for clients to reduce the size of their estate without using up their exemption amounts.

  • The Potential 2025 Sunset

Unless Congress takes action, the provisions of the TCJA allowing the high exemption amounts are set to expire on December 31, 2025. If no action is taken, then beginning in 2026, the federal gift and estate tax exemption will revert to pre-TCJA levels, adjusted for inflation. Estimates suggest this could lower the exemption to approximately $6 to $7 million per individual. This dramatic reduction underscores the importance of acting promptly to utilize the current higher exemptions.

  • What Happens Next?

While legislative action could extend or modify the current exemption levels, there is no guarantee that Congress will act. Given the uncertainty, proactive planning is essential for individuals and families who intend to transfer significant wealth during their lifetime or at death before their current high exemption amounts expire. Acting before the sunset date provides an opportunity to maximize the benefits under the current law.

For more information or to schedule a consultation, contact an attorney with The Diamond Law Firm today. Our team is here to help you navigate these changes and accomplish your estate planning goals.