Lifetime Exemption Amount

The lifetime exemption amount (also called the unified lifetime exemption) is the maximum total value of gifts and estate transfers a U.S. citizen can make without incurring federal gift or estate tax. As of 2024, the exemption is $13.61 million per individual; amounts exceeding the exemption face federal tax at 40%.

The unified gift and estate tax framework

Federal law imposes tax on large transfers: gifts during life and transfers via estate upon death. To prevent avoidance through lifetime giving (instead of waiting for estate tax), the law unified these taxes. The lifetime exemption is a unified bucket: amounts given away during life reduce the exemption available at death.

Example: In 2024, you have a $13.61 million exemption. You give away $5 million during life. At death, you have only $8.61 million remaining exemption. If your estate exceeds $8.61 million, the excess is taxed at 40%.

This unification prevents the wealthy from avoiding estate tax by simply giving everything away before death.

Separate from the annual exclusion

The lifetime exemption is distinct from the annual gift tax exclusion (currently $18,000 per donor, per recipient, per year). You can give $18,000 to as many people as you want, every year, without using the lifetime exemption or filing a gift tax return.

Gifts within the annual exclusion are truly tax-free and do not reduce the lifetime exemption. Only amounts exceeding the annual exclusion count against the lifetime exemption.

Example: In 2024, you gift $50,000 to your daughter.

• First $18,000: Annual exclusion, no tax, no exemption reduction.
• Remaining $32,000: Uses $32,000 of your $13.61 million lifetime exemption.

If you were married in community property states or had been married and divorced, there are additional complexities around splitting (spouses can elect to treat gifts as if made by both).

Portability for married couples

A key provision allows spouses to combine exemptions. If one spouse dies without using their entire exemption, the unused portion passes to the surviving spouse. This is called “portability.”

Example: Husband dies in 2024 with a $13.61 million exemption, but his estate is only $5 million. He used $5 million and had $8.61 million unused. With portability, the widow inherits his $8.61 million unused exemption, giving her a total exemption of $13.61 + $8.61 = $22.22 million.

Portability requires the executor of the deceased spouse’s estate to file a federal estate tax return (Form 706) even if no tax is owed, to preserve the unused exemption for the surviving spouse. Failing to file costs the family dearly.

The sunset provision and planning urgency

The Tax Cuts and Jobs Act of 2017 doubled the lifetime exemption from ~$5 million to ~$10 million per person (indexed annually). This generous exemption is temporary: it expires on December 31, 2025, and reverts to ~$7 million (inflation-adjusted). This reversion creates urgent planning incentives.

High-net-worth individuals and families are using 2024–2025 to make large gifts, locking in the $13.61–$13.99 million exemption before it shrinks to ~$7 million in 2026. A married couple could give $27.98 million in 2025 with zero tax, using lifetime exemptions. Come 2026, that same $27.98 million gift would result in ~$8 million in federal estate/gift tax.

Many estate attorneys are advising clients: “If you have a net worth above $7 million, use the exemption now.” This is driving a wave of irrevocable trusts, dynastic wealth transfers, and Grantor Retained Annuity Trusts (GRATs).

Basis step-up and tax efficiency

A strategic consideration: property held until death receives a “stepped-up basis” (the heirs inherit property at its fair market value on the death date, not the deceased’s original cost). A wealthy individual who has appreciated assets might choose not to gift during life (preserving the step-up) but instead hold and allow the step-up to apply at death.

Conversely, appreciated assets given during life do not step up; the gift recipient inherits the original cost basis. For depreciated assets, it’s often better to wait until death (so the recipient gets a stepped-down basis) or to gift to avoid step-down.

These competing considerations make lifetime versus death timing complex and often warrant professional estate planning.

Interaction with state taxes

Many states have separate state estate and gift taxes. Some states exempt more (or less) than the federal amount. New York, for example, has a ~$6.94 million exemption (2024), lower than federal. A gift that uses $2 million of federal exemption might also trigger New York state tax if made by a resident.

Married couples and high-net-worth individuals often work with multistate tax advisors to minimize combined federal and state liability.

Limitation on portability

Portability is not automatic. The surviving spouse must file Form 706 to claim the unused exemption. Executors who fail to file on time lose the benefit. Additionally, portability does not apply to generation-skipping transfer (GST) tax exemption; that must be allocated explicitly during life, making GST planning more complex.

Changes post-2025

The reversion to ~$7 million in 2026 will likely be contentious. Some argue the high exemption was too generous; others want to preserve it. Congress will need to act before end of 2025 to extend or modify the current rules. Until then, 2024–2025 planning assumes the sunset occurs.