When contemplating estate planning, it’s important to be aware of estate and gift tax limits. In 2023, the amount an individual can gift within their lifetime (or upon their death), without tax consequences, is $12.92 million. This is an $860,000 increase from 2022. The amount typically increases each year based on inflation.
The current “high” exclusion amounts were created by The Tax Cuts and Jobs Act of 2017, which increased gift and estate tax exclusion amounts beginning in 2018 through 2025. However, on January 1, 2026, the exclusion amount will “sunset” and revert back to the 2017 amount of $5 million, adjusted for inflation. That’s a significant difference – especially considering estate taxes of 40% will be applied to anything over the threshold. Those with considerable assets may want to consider making some significant gifts before the current estate and gift tax exclusion amount drops in 2026.
Being prepared for this change is the best course of action. But take note – historically, projected drastic changes in the estate and gift tax limits have come in differently than expected. Here’s a look back:
| Year | Exemption Amount |
|---|---|
| 2008 | $2,000,000 |
| 2009 | $3,500,000 |
| 2010 | $5,000,000 |
| 2011 | $5,000,000 |
| 2012 | $5,120,000 |
| 2013 | $5,250,000 |
| 2014 | $5,340,000 |
| 2015 | $5,430,000 |
| 2016 | $5,450,000 |
| 2017 | $5,490,000 |
| 2018 | $11,180,000 |
| 2019 | $11,400,000 |
| 2020 | $11,580,000 |
| 2021 | $11,700,000 |
| 2022 | $12,060,000 |
| 2023 | $12,920,000 |
Sources:
Federal Estate and Gift Tax Rates, Exemptions, and Exclusions, 1916-2014 | Tax Foundation
Estate Tax | Internal Revenue Service (irs.gov)
There are also annual limits to the amount an individual can gift per year.
| Year of Gift | Annual Exclusion per Done |
|---|---|
| 2011 through 2012 | $13,000 |
| 2013 through 2017 | $14,000 |
| 2018 through 2021 | $15,000 |
| 2022 | $16,000 |
| 2023 | $17,000 |
Source:
Frequently Asked Questions on Gift Taxes | Internal Revenue Service (irs.gov)
When you gift more than the allotted annual exclusion amount, it should be reported via Form 709 to be applied against your lifetime gift tax exemption. It’s important to file the gift tax return for anything above the thresholds so you have a paper trail. The returns should be kept permanently.
Of course, there is the possibility that tax law changes between now and 2026 which may impact the January 1, 2026, sunset provision. There is a history of projected cuts not coming to fruition. However, hope isn’t a strategy. It’s wise to think about how to address this now. Here are some options to consider:
- Draft a “just in case” estate plan that takes advantage of the higher exclusion amounts before the end of 2025.
- Put assets into a dynasty trust using your lifetime gift tax exemption, which will not subject those assets to estate taxes. The trust is irrevocable, and you will relinquish control of those assets. However, it can be drafted to take care of your beneficiaries according to your wishes, but it is difficult to change and not flexible to address any future contingencies.
- Currently, the individual exclusion amounts are “portable” amongst spouses. Under Revenue Procedure 2022-32, the surviving spouse has 5 years to make the tax portability election if an estate tax return does not have to otherwise be filed.
- Don’t overlook common “gifts” for which you should file a gift tax return that counts toward your lifetime gift tax exemption. This could include house down payments given to children, a large wedding present of cash, or simply helping out family members with monetary gifts.
When it comes down to it, a well thought out estate plan enables you to limit the tax consequences to your beneficiaries. It’s hard for most of us to wrap our heads around an estate approaching the current threshold of $12.92 million – or over $25 million for a married couple. But if that threshold drops to $5 million, it’s a different story. Be proactive about how your story plays out. Watch for the sunset in 2026, and be ready to act.