Estate Taxes and Lifetime Gifting: What You Need to Know
Planning your legacy isn’t just about distributing assets—it’s about doing so in a way that minimizes taxes and maximizes impact. Here’s how to navigate estate taxes and lifetime gifting in 2025, with direct IRS resources included to help you make informed decisions.
🏛️ What Are Estate Taxes?
The federal estate tax applies to the transfer of property after death. While only the largest estates are affected, the consequences can be steep.
Estate Tax Exemption for 2025: $13.61 million per person
Tax rate: Up to 40% on assets above the exemption
🔗 IRS Overview of Estate Taxes
📌 Note: The exemption is scheduled to drop significantly in 2026, potentially to around $6–7 million unless new legislation is passed.
💸 What Is the Lifetime Gift Tax Exclusion?
The lifetime gift tax exclusion allows individuals to give away substantial assets tax-free—up to a certain limit over their lifetime. Gifts beyond this limit are subject to the gift tax, unless covered by the unified credit.
Lifetime exclusion (2025): $13.61 million
Annual exclusion (2025): $18,000 per recipient
Gifting within the annual limit doesn’t require IRS reporting.
🔗 IRS Gift Tax Overview
🔗 IRS Annual Gift Tax Exclusion Details (Publication 559)
🎁 Why Use Lifetime Gifting?
Strategic gifting can:
Reduce your taxable estate (and thus estate tax exposure)
Transfer appreciating assets early (before they grow further in value)
Help loved ones now, rather than only through inheritance
Example: Gifting a $100,000 asset now prevents the future appreciation from being taxed in your estate.
⚖️ Gifting vs. Bequeathing at Death: Key Differences
Gifts during life retain your original cost basis → higher potential capital gains tax for the recipient
Inherited assets receive a step-up in basis → potentially lower capital gains tax when sold
So when deciding between giving now vs. later, consider both:
Your total estate size
The type and appreciation of assets
🔗 IRS Guidance on Basis of Assets
📄 Do You Need to File IRS Form 709?
Yes, if:
You give more than $18,000 to any one person in a year
You give assets that trigger a reportable event (e.g., forgiveness of debt, property transfer)
Form 709 is informational—it tracks usage of your lifetime exemption.
🔗 About Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return
🔗 Form 709 PDF + Instructions
🧠 Final Takeaways
With the estate tax exemption set to drop in 2026, now is a strategic time to:
Evaluate your estate size
Use gifting to reduce future estate exposure
Work with a CPA or estate attorney to make smart, tax-efficient decisions
Additional Resources:
IRS Estate and Gift Tax FAQs
IRS Instructions for Estate and Gift Taxes