Lifetime Exemption (Estate/Gift)
The Lifetime Exemption is the total amount an individual may transfer free of federal gift and estate tax during their lifetime and at death, unified across both taxes under IRC Sections 2010 and 2505 — set at $13.99 million per person in 2025, scheduled to sunset to approximately $7 million (inflation-adjusted) after December 31, 2025 absent Congressional action.
The unified gift and estate tax exemption is one of the most consequential figures in estate planning. It represents the total dollar threshold below which all transfers — made during life through taxable gifts and at death through the estate — can occur without federal transfer tax. Every taxable gift made during life that exceeds the annual exclusion reduces the available exemption dollar-for-dollar; the remainder is applied at death. If the estate exceeds the remaining exemption, the excess is taxed at the 40% federal estate tax rate under IRC Section 2001.
The Tax Cuts and Jobs Act of 2017 temporarily doubled the exemption from its prior $5 million base (roughly $5.49 million inflation-adjusted in 2017) to $10 million (roughly $11.18 million inflation-adjusted). With annual inflation adjustments, the exemption reached $13.99 million per person in 2025. Absent new legislation, the TCJA provision sunsets after December 31, 2025, and the exemption returns to the pre-TCJA $5 million base adjusted for inflation — estimated at approximately $7 million per person as of 2026.
The portability election under IRC Section 2010(c) allows a surviving spouse to claim the deceased spouse's unused exemption (DSUE) by filing a timely estate tax return, even if no return would otherwise be required. Portability effectively gives married couples a combined exemption of up to $27.98 million in 2025 if fully utilized. However, portability of the DSUE does not apply to the generation-skipping transfer (GST) tax exemption — GST exemption must be allocated separately during life or at death.
The sunset creates significant urgency in estate planning. If Congress does not extend or make permanent the higher exemption, large taxable gifts made before the sunset will have used exemption that was available at the time — and under Treasury Regulation 20.2010-1, the estate may use the higher of the exemption available at the date of the gift or the exemption at death, preventing clawback of pre-sunset gifts. This anti-clawback rule was confirmed by Treasury in 2019 and has been a primary driver of accelerated lifetime giving by ultra-high-net-worth families.
For married couples, the most common strategy is to maximize use of both spouses' exemptions through direct gifts, trust funding, or a combination before the sunset. Families with illiquid closely held assets, real estate, or business interests must also plan for the liquidity to pay any estate tax that will be due nine months after death under IRC Section 6166, which provides for installment payment of estate taxes attributable to closely held business interests.