How much can you give away tax-free in 2025 using the estate tax exemption?

In 2025, each individual can transfer up to $13.99 million during life or at death free of federal estate and gift tax. Married couples can shelter up to $27.98 million combined. This is the highest exemption level in history and is protected by the anti-clawback regulation even if the exemption drops in 2026.

What estate planning strategies should be considered before the exemption drops?

Strategies include making large lifetime gifts to irrevocable trusts such as spousal lifetime access trusts, grantor retained annuity trusts, and dynasty trusts. Valuation discounts on transfers of business interests and real estate can leverage the exemption further. All planning should be completed before December 31, 2025.

Estate Tax Exemption at $13.99 Million: The Final Year for Planning | Lynch Law

The federal estate and gift tax exemption has reached its historic peak of $13.99 million per individual in 2025, providing each person with the ability to transfer nearly $14 million during life or at death free of the 40 percent federal transfer tax. For married couples, the combined exemption of $27.98 million shelters an extraordinary amount of wealth. But this is almost certainly the last year at these levels. Unless Congress acts to extend the Tax Cuts and Jobs Act's enhanced exemption, the basic exclusion amount reverts to approximately $7 million per person on January 1, 2026.

The Sunset Mechanism

The TCJA doubled the estate and gift tax exemption from its pre-2018 baseline of approximately $5.49 million per person to $11.18 million, with annual inflation adjustments thereafter. However, this doubling was enacted with a built-in expiration date. Section 2010(c)(3)(C) of the Internal Revenue Code provides that after December 31, 2025, the basic exclusion amount reverts to $5 million, adjusted for inflation from 2011. Based on current projections, the adjusted amount for 2026 would be approximately $7 million per individual.^[1]

The practical impact is stark. A married couple whose combined estate is worth $25 million pays zero estate tax in 2025. If the exemption reverts in 2026 and both spouses die without having made lifetime gifts, the taxable estate would be approximately $11 million, producing an estate tax liability of approximately $4.4 million.

The Anti-Clawback Protection

The single most important planning tool available in 2025 is the anti-clawback regulation. Treasury Regulation section 20.2010-1(c) provides a special rule for gifts made when the exemption is higher: if a taxpayer makes gifts that use the higher exemption amount, and the exemption subsequently decreases, the estate tax calculation at death will use the higher exemption amount that was in effect when the gifts were made. The gifted assets are not "clawed back" into the estate for tax purposes.^[2]

This means that a person who gifts $13.99 million in 2025 and dies in 2030 when the exemption is $7 million will receive credit for the full $13.99 million on those gifts. The estate will owe no additional tax on the gifted amount. This regulation provides the foundation for aggressive but well-protected gifting strategies in 2025.

Planning Vehicles

Irrevocable Trusts

The most common vehicle for utilizing the enhanced exemption is the irrevocable trust. By transferring assets to an irrevocable trust, the grantor removes those assets from the taxable estate while potentially retaining indirect access to the trust's benefits through the trust's terms. Irrevocable life insurance trusts, dynasty trusts, and generation-skipping trusts can all be structured to maximize the use of the exemption while providing flexibility for the grantor's family.

Spousal Lifetime Access Trusts

For individuals who are reluctant to give away nearly $14 million irrevocably, the spousal lifetime access trust provides a middle ground. A SLAT is an irrevocable trust established by one spouse for the benefit of the other spouse and, typically, the couple's descendants. The grantor spouse removes the assets from the taxable estate while the beneficiary spouse retains access to the trust's income and, in some cases, principal. This structure allows the couple to use the exemption while maintaining practical access to the gifted wealth.^[3]

Grantor Retained Annuity Trusts

A GRAT allows the grantor to transfer assets to a trust while retaining an annuity for a specified term. If the assets appreciate at a rate exceeding the Section 7520 rate used to value the retained annuity, the excess appreciation passes to the trust beneficiaries gift-tax free. GRATs can be particularly effective in 2025 for transferring assets expected to appreciate significantly.

Direct Gifts

For individuals with straightforward estate planning needs, direct gifts to children or other beneficiaries can be the simplest way to use the enhanced exemption. Cash gifts, transfers of marketable securities, and gifts of interests in family businesses can all be structured to utilize the exemption effectively. However, direct gifts lack the asset protection and control features that trust-based planning provides.

Valuation Considerations

The value of the gift for transfer tax purposes is determined at the date of the gift. For closely held business interests, real estate, and other non-publicly traded assets, obtaining a qualified appraisal is essential. Valuation discounts for lack of marketability and lack of control may be available for minority interests in closely held entities, further stretching the effective capacity of the exemption.

The IRS has proposed regulations targeting certain basis-shifting and valuation strategies in the partnership context, so taxpayers considering transfers of entity interests should work with experienced counsel to ensure their valuations are defensible and their structures comply with current guidance.

2025 is the year to act. The planning window is finite, and executing sophisticated estate plans takes time. Business owners and high-net-worth individuals should engage their estate planning team now to evaluate their options and implement strategies before the year-end deadline.

References

^[1] I.R.C. § 2010(c)(3)(C) (providing the reversion of the basic exclusion amount after 2025); Rev. Proc. 2024-40 (setting the 2025 basic exclusion amount at $13.99 million).
^[2] Treas. Reg. § 20.2010-1(c) (anti-clawback rule: estates may compute the estate tax credit using the higher of the exemption in effect at the time of the gift or the exemption in effect at death).
^[3] See IRS, Final Regulations Confirm: Making Large Gifts Now Won't Harm Estates After 2025 (Nov. 2019) (confirming the anti-clawback protection for gifts made under the higher TCJA exemption).