The IRS has released annual inflation adjustments for 2025. These include increased gift, estate and generation-skipping transfer tax (“GST”) exemptions and annual gift tax exclusions. The changes are as follows:
The federal gift and estate tax exemption and GST exemption increased to $13,990,000 for an individual (from $13,610,000 in 2024). This means that a married couple now has $27,980,000 of available exemption. Note that the exemptions are scheduled to reduce by half as of January 1, 2026, unless Congress changes the law. However, with the results of the election, it seems likely that legislation will be passed so that, at a minimum, the exemptions are not reduced.
The federal annual gift tax exclusion increased to $19,000 (from $18,000 in 2024). As a result, individuals are now able to give $19,000 per year ($38,000 for a married couple) to any number of persons (outright or through certain types of trusts) without using any gift tax exemption. The annual gift tax exclusion for gifts to non-U.S. citizen spouses increased to $190,000 (from $185,000 in 2024). (Note that gifts made to a U.S. citizen spouse are not taxable in any amount whether made during the spouse’s lifetime or at death.)
Under Connecticut law, starting in 2023, the Connecticut gift and estate tax exemption match the current federal exemption and is currently $13,990,000. Therefore, if the federal exemption increases or decreases, the Connecticut exemption will increase or decrease by the same amount.
The New York estate tax exemption increased to $7,160,000 (from $6,940,000). New York has no gift tax but does include taxable gifts made within three years of death in the taxable estate of New York residents or those owning New York real property or tangible personal property at death.
Unlike the federal exemption, the state estate tax exemption is not portable to the surviving spouse, so a married couple who lives in New York or Connecticut may need to engage in some trust planning to utilize both spouses’ state exemptions.
For those who have been “on the fence” regarding making large gifts to use the “bonus exemption” (i.e., approximately $7M of exemption that could disappear after 2025), there are still benefits to gifting now in any amount even if the exemption does not go down since future appreciation on the gifted assets will be out of your estate. With any gift, one must factor in the loss of a step-up (or step-down) of income tax basis of assets had the assets been held until death and the elimination of built-in capital gains. In addition, you should make gifts only if you are comfortable with no longer owning those assets (though you can make gifts to a trust for your spouse, known as a spousal lifetime access trust or “SLAT”). For more information, please contact Lisa F. Metz (lmetz@brodywilk.com) or another BW attorney.
