Thoughtful Gifting Part 1: Use It or Lose It? Now Could Be the Time to Use Your Gift and Estate Tax Exemption

04.20.2021 - Nita S. Vyas, Trust Counsel

Thoughtful Giving Part 1: This is the first piece in a four-part series on the federal gift and estate tax, what the future might hold for the exemption amount, and why you should consider making large gifts in 2021.

Thoughtful Gifting Part 2
Thoughtful Gifting Part 3
Thoughtful Gifting Part 4

The federal gift and estate tax exemption amount is now the highest it has been since the tax was enacted in 1916. This means you can pass more to your heirs today, without paying any federal gift or estate tax, than ever before in the past century.1

In 2021, anyone can give away up to $11.7 million during their lifetime or at death without being subject to federal gift or estate tax. That amount doubles for a married couple. So, if a husband and wife with assets of $23.4 million both died in 2021, their estate would not be subject to federal estate tax. Any amount over the exemption would be taxed at a 40% rate.

Why Consider Making Large Gifts Now?

The gift and estate tax exemption amount is scheduled to be cut in half in 2026. But many believe the exemption amount will be cut before then depending on possible new legislation.

Congress also could eliminate or scale back estate planning techniques that leverage the exemption amount or impose additional taxes on top of the existing federal estate tax.

Should You Gift Now, or Wait?

If you are concerned about estate taxes, the potential for change in the gift and estate tax rules raises an important question:  Should you make gifts in 2021 and use your current exemption or wait and risk losing it?

The chart shows the estate tax exemption amount over the past 20 years and projects what the next five years may look like. The exemption amount has been trending up (except in 2010 when the federal estate tax was repealed for one year). It increased most dramatically between 2017 and 2018.

The Trend of Increasing the Estate Tax Exemption May Be Coming to an End  

Federal Estate Tax Exemption Amount for Individuals ($ million)

Source: Internal Revenue Service *Projections based on adjustments for inflation **Possible if the exemption reverts to 2017 levels

But this history of steady increases is exactly why many people think Congress will break the cycle and roll back the exemption amount. 

Additional proposals have been made to:

  • Remove or limit several estate tax savings techniquies, such as Grantor Retained Annuity Trusts and annual exemption gifts.
  • Repeal the “step-up” of income tax basis for property that transfers at death.
  • Impose a “deemed realization” of capital gains at death, meaning capital gains tax would apply to assets when they transfer at death.
Who Should Consider Gifting Now?

If you think your estate could be subject to federal estate tax, consider gifting in 2021. For those with large estates with more than the current exemption, you could save more than $4 million in estate tax simply by making lifetime gifts before the exemption amount is reduced. If your estate is below the current exemption, you still may want to consider gifting since the estate tax could be back on the table for you if the exemption goes down. 

Tax-Smart Gifting

If you are considering gifting, we can help you find the best time to give, determine how much to give, and find gifts that offer the most attractive tax benefits. We also can offer guidance to help you communicate with your beneficiaries more effectively and outline the pros and cons of using a trust to make your gifts.


[1] The only exception was in 2010 when the federal estate tax was replaced for the single year with a “carry-over” basis rule. 

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