A long-time, highly effective estate planning tool is gifting which takes several forms, the Annual Exclusion, the Unified Credit, and the Generation Skipping Transfer Tax (GSTT). It became even more effective with passage of the 2017 Tax Cuts and Jobs Act (TCJA). The inflation adjustments for those three tools still offer a generous way to pass on assets to your loved ones while benefiting your estate. The question yet to be answered is whether it will be as beneficial next year.
The Annual Exclusion
The annual federal gift tax exclusion, also known as the annual exclusion, is the amount you can give to another individual without paying a gift tax or eating into your unified credit. For 2025 the inflation-adjusted gift tax exclusion is $19,000. That means you can give up to $19,000 to as many people as you want—kids, grandkids, in-laws, out-laws or people you just like. And as long as you don’t give more than $19,000 to any one person, you’re not required to report the gifts on a Form 709 gift tax return. A married couple can give up to $38,000 per person.
There are four types of gifts not subject to gift tax: gifts to political organizations; gifts to certain exempt or charitable organizations; gifts that qualify for educational exclusion (such as tuition payments); and gifts that qualify for medical exclusions.
The Unified Credit
The unified credit is also known as the lifetime estate and gift tax exemption, applicable exclusion amount, or basic exclusion amount. The unified credit is the amount you can give during your lifetime or can be passed on to heirs after your death free of gift or estate taxes. For 2025, the inflation-adjusted unified credit is $13,990,000. The unified credit can be shared between spouses. When used correctly, a married couple may transfer a combined $27,980,000 without incurring gift or estate tax.
The Generation Skipping Transfer Tax (GSTT) Exemption
The GSTT exemption is the amount that can be left to a skip generation without incurring GSTT. That’s defined as a generation two or more generations younger than you. For 2025 the inflation-adjusted generation skipping amount is $13,990,000, the same amount as the unified credit. The difference is that the GST tax exemption isn’t shareable with your spouse. So it’s important to use the exemption during your life or at death.
What about next year?
But will there be any major changes to these three tools in 2026? That’s a question yet to be answered. The current exemptions came out of the Tax Cuts and Jobs Act of 2017, which is scheduled to expire at the end of 2025. Unless Congress takes action before then, either extending them or making them permanent, the unified credit and GSTT will revert to their 2017 level of $5 million, adjusted for inflation.
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