Each year, the US Internal Revenue Service (IRS) sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount of their assets tax-free without using up any of the taxpayer’s lifetime gift and estate tax exemption.
The IRS has announced that the annual gift tax exclusion is increasing in 2025 due to inflation. The exclusion will be $19,000 per recipient for 2025. This means that you can gift up to $19,000 per person in 2025 to whoever you choose to without worrying about your lifetime exemption gifting limits. Married couples may gift up to $38,000 per year due to this increase. Speaking of the lifetime exemption, the estate and gift tax exemption will be $13.99 million per individual for 2025 gifts and deaths, up from $13.61 million in 2024. This increase means that a married couple can shield a total of $27.98 million without having to pay any federal estate or gift tax. For example, if an individual has two children and four grandchildren, he or she may transfer $114,000 of his or her estate in 2025 to their descendants without touching their combined $lifetime gift tax exemption, thus allowing them to transfer further substantial assets gift tax-free. Not only are the assets removed from the taxpayers’ taxable estates, the assets’ future appreciation also avoids gift and estate taxes.
When an individual gifts an amount exceeding the annual gift tax exclusion, a portion of the individual’s lifetime gift tax exemption, which is set at $13.99 million for the year 2025, will be utilized. The gift and estate tax exemptions are interconnected, meaning that the utilization of the gift tax exemption will correspondingly reduce the amount that can be bequeathed estate tax-free upon death.
Should an individual make gifts surpassing the annual gift tax exclusion, a gift tax return must be filed by April 15 of the following year to report the gift and monitor the usage of the lifetime exemption.
It is important to note that, although the IRS has announced an increase in the lifetime estate and gift tax exemption to $13.99 million in 2025, under current legislation, this amount is scheduled to be reduced by half at the beginning of 2026, unless further updates are passed.
If you wish to establish more about legacy planning and estate gifting, it is advisable to seek the counsel of an experienced estate planning attorney in Montgomery County. At Rick Law, our attorneys have been serving clients throughout Pennsylvania for over 15 years, and we are well-equipped to represent you. Our firm possesses extensive expertise in various aspects of elder law, ranging from estate planning to long-term care planning. To arrange a confidential legal consultation, please contact us at 610-850-9036, or reach out to us online via our website.