Take Advantage of the Lifetime Estate and Gift Tax Exemption

published 25 August 2023

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The lifetime estate and gift tax exemption for 2023 deaths is $12,920,000. After 2025, the exemption will fall back to $5 million, adjusted for inflation, unless Congress agrees to extend the higher amount. The odds of any extension depend on which party controls the White House and Congress after the 2024 election.

Federal estate and gift tax exemption

Most tax-free gifts you make now won’t trigger post-2025 estate tax bills. Estates use the higher lifetime exemptions for gifts to calculate post-2025 estate taxes. So, many people who made or make big gifts from 2018 through 2025 won’t lose out on the benefit of the larger exemption amount if it drops back down in 2026.

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But not all gifts would qualify. Under an IRS proposed regulation, completed gifts that are later included in the decedent’s gross estate at death would be subject to the exclusion amount in effect in the year of the donor’s death. Implicated strategies include grantor-retained income trusts and transactions involving promissory notes.

State estate and inheritance taxes

The District of Columbia and 12 states levy their own estate taxes on some decedents: Connecticut, Hawaii, Illinois, Maine, Maryland, Massachusetts, Minnesota, New York, Oregon, Rhode Island, Vermont, and Washington. The estate tax exemption amounts in these 13 locales vary widely from state to state. Only Connecticut has hiked its exemption amount close to the current federal level. Six states now have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. Iowa’s inheritance tax is currently being phased out and is slated to end after 2024.

This first appeared in The Kiplinger Tax Letter. It helps you navigate the complex world of tax by keeping you up-to-date on new and pending changes in tax laws, providing tips to lower your business and personal taxes, and forecasting what the White House and Congress might do with taxes. Get a free issue of The Kiplinger Tax Letter or subscribe.

Joy is an experienced CPA and tax attorney with an L.L.M. in Taxation from New York University School of Law. After many years working for big law and accounting firms, Joy saw the light and now puts her education, legal experience and in-depth knowledge of federal tax law to use writing for Kiplinger. She writes and edits The Kiplinger Tax Letter and contributes federal tax and retirement stories to kiplinger.com and Kiplinger’s Retirement Report. Her articles have been picked up by the Washington Post and other media outlets. Joy has also appeared as a tax expert in newspapers, on television and on radio discussing federal tax developments.