Year-End Update: Estate & Gift Tax Exemptions

The United States has taxed the estates of decedents since 1916, and gifts since 1924, with tax rates and exemption levels that have varied greatly over the last two decades.  Massachusetts is one of several states in the country that has a state estate tax.  As we approach year end, I thought it would be helpful to outline some key forms and current thresholds relating to estate & gift tax.

Form 706 – United States Estate (and Generation-Skipping Transfer) Tax Return

Various dollar amounts and limitations in Form 706 are indexed for inflation. For individual taxpayers who died in 2024, the following amounts are applicable:

• The lifetime exemption amount is $13,610,000 ($13,990,000 for 2025). For a surviving spouse, add to these exemption amounts the unused lifetime exemption of a deceased spouse, where portability was elected.

Please note that due to the current high inflationary times, the increase in lifetime exemption from year to year has become significant. The increase from 2023 to 2024 is $690,000.

• Rev Proc 2022-32 extends the time period to elect Portability of a deceased spouse’s unused lifetime exemption to five years for qualifying estates.

• Barring any legislative changes, certain provisions in the TCJA of 2017 are scheduled to sunset on 12/31/2025. This means that the federal lifetime exemption is set to revert to pre-TCJA amounts. Please note, for deaths after 2025, under current law, the lifetime exemption will drop to about half of its then current level.

• The top estate and generation-skipping transfers tax rate remains at 40%. 

Form 709 – United States Gift (and Generation-Skipping Transfer) Tax Return

Various dollar amounts and limitations in Form 709 are indexed for inflation. For gifts made in 2024, the following amounts are applicable:

• The lifetime exemption amount is $13,610,000 ($13,990,000 for 2025). For a surviving spouse, add to these amounts the unused lifetime exemption of a deceased spouse, where potability was elected. 

• The annual gift exclusion for 2024 is $18,000 ($19,000 for 2025). 

• For gifts made to spouses who are not U.S. citizens, for 2024 the annual exclusion has increased to $185,000 ($190,000 for 2025). 

• The top rate for gifts and generation-skipping transfers remains at 40%. 

Form M-706 – Massachusetts Estate Tax Return

For decedents who died in 2024, the following amounts are applicable:

• The lifetime exemption amount is $2M. 
• The top estate tax rate remains at 16%. 

Massachusetts estate legislation was passed October 4, 2023. Unlike the $1M lifetime exemption under prior law, the new legislation eliminates the so-called “cliff-effect” – so if your estate goes over $2M, only the difference above $2M is taxed, not the entire estate, per prior law.

If you have comments/questions on the estate thresholds blog or on other estate, gift and trust taxation items, leave a comment below, or feel free to reach out to me directly. I’m happy to help!