The Internal Revenue Service (IRS) has announced the 2025 Gift and Estate Tax Exemption, offering individuals and families expanded opportunities for tax-efficient wealth transfer strategies. Here is a summary of the key updates:
Annual Gift Tax Exclusion
Starting January 1, 2025, the annual gift tax exclusion will increase to $19,000 per recipient, up from $18,000 in 2024. Married couples may gift up to $38,000 per recipient annually without triggering gift tax or reporting obligations.
Example: A married couple with three children and five grandchildren can gift a total of $304,000 in 2025 without impacting their lifetime exemption amounts. This also removes future appreciation of those gifted assets from their taxable estates.
2025 Gift and Estate Tax Exemption – Lifetime
The lifetime estate and gift tax exemption is set to rise to $13.99 million per individual in 2025, up from $13.61 million in 2024. This means a married couple can collectively shield up to $27.98 million from federal estate and gift taxes.
Planning Tip: High-net-worth individuals who have already utilized prior exemptions may want to take advantage of this additional $760,000 per individual in 2025 to make further tax-free transfers.
New York State Estate Tax Exemption
In addition to federal exemptions, New York State imposes its own estate tax with a separate exemption amount. For 2025, the New York estate tax exemption is projected to be $7.16 million, up from $6.94 million in 2024.
Important Note: New York’s estate tax system includes a “cliff” that can result in estates slightly exceeding the exemption amount being taxed on the entire estate value, not just the excess. If an estate’s value exceeds the exemption by more than 5%, the entire estate becomes taxable.
Gifts to Non-U.S. Citizen Spouses under 2025 Gift and Estate Tax
For gifts to non-U.S. citizen spouses, the annual exclusion amount will rise to $190,000, up from $175,000 in 2024. This increase allows tax-free transfers of significant value to non-citizen spouses without eroding other exemption limits.
Future Changes and Planning Considerations
It is important to note that, under current law, these increased exemption amounts are scheduled to revert to pre-2018 levels, adjusted for inflation, on January 1, 2026. This reduction could lower the exemption to approximately $7 million per individual.
Key Strategies to Consider
With the 2026 sunset provision in mind, individuals and families should take proactive steps to optimize their estate planning strategies, including:
- Accelerated Gifting: Maximize the increased exemption before the end of 2025 to lock in tax-free transfers.
- Estate Planning Review: Revisiting estate plans to ensure they align with current federal and state laws, potentially incorporating trusts or other vehicles to maximize tax efficiency.
- Mitigating New York’s Estate Tax Cliff: Implementing strategies to keep the estate value below the New York exemption threshold or considering charitable bequests to reduce taxable estate value.
- Trust Planning: Consider irrevocable trusts or other tools to remove assets from taxable estates.
- Professional Guidance: Work with estate planning and tax professionals to tailor strategies to individual circumstances and legislative developments.
Final Thoughts on 2025 Gift and Estate Tax Exemption
In conclusion, the IRS’s 2025 Gift and Estate Tax Exemption announcement offers enhanced opportunities for tax-efficient wealth transfer. However, with the scheduled reduction in federal exemption amounts and the complexities of New York’s estate tax system, proactive planning is essential to capitalize on the current favorable tax environment and mitigate potential state-level tax liabilities.
Contact an estate planning attorney today to discuss your estate planning needs and develop a customized strategy that takes full advantage of these favorable tax changes
For more information, please contact NYC Probate Litigation, Guardianship, Probate, and Estate Planning attorney Regina Kiperman:
Phone: 917-261-4514
Fax: 929-556-2089
Email: rkiperman@rklawny.com
Or visit her at:
40 Wall Street
Suite 2508
New York, NY 10005
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