Each year, the IRS announces inflation-adjusted changes to tax brackets, along with many other changes and adjustments to account for inflation. The IRS has released its adjustments for 2025, and you can click here to read the IRS announcement from this fall.
As a part of its annual process, the IRS also adjusts the federal lifetime gift, estate, and GST tax exemptions. In 2024, the federal lifetime gift, estate, and GST tax exemption amount is $13,610,000 per person or $27,220,000 for a married couple. Here are the new numbers and considerations for 2025:
- Starting January 1, 2025, the federal lifetime gift, estate, and GST tax exemption amount will increase to $13,990,000 per person or $27,980,000 for a married couple.
- The annual exclusion amount for gifting is also increasing to $19,000 per recipient in 2025. This means that an individual can gift up to $19,000 ($38,000 for a married couple) to any person without incurring a gift tax or having to file a gift tax return (IRS Form 709).
- High net worth individuals and couples who have already fully used their existing federal exemption amount based on the prior exemptions may want to look at additional gifting in 2025.
- In addition to gifts, there may be an option to pay unlimited amounts for certain tuition or medical expenses, so long as those payments are made directly to the school or medical provider.
- A variety of planning techniques can be used to leverage the existing exemption prior to the expected future decrease in the exemption amount.
It is important to note that the current federal exemption amount is not guaranteed to last. On January 1, 2026, the base estate tax exemption amount is scheduled to decrease back down to $5,000,000 per person, where it was before the Tax and Jobs Act of 2017. As adjusted for inflation, the exemption amount will likely fall around $7,000,000 or so. As such, now is the time to act on planning options.
In addition to the federal gift and estate tax, Minnesota also has its own state-specific estate tax. Minnesota’s state-specific estate tax exemption remains at $3,000,000 per person. The Minnesota estate tax exemption amount has not changed since 2020, and under current law the Minnesota estate tax exemption is scheduled to remain at $3,000,000 until new legislation occurs. The Minnesota estate tax rates range between 13 and 16 percent. Please contact our attorneys in the Trusts & Estates Practice Group if you would like to evaluate and discuss gifting and tax strategies given the new exemption amounts and expected future changes.
Let’s connect soon to discuss strategies for the next year!
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