New Estate and Gift Tax Rules: What You Need to Know in 2025!

As of July 4, 2025, the federal government enacted sweeping tax legislation under H.R. 1.  Among the most significant changes are enhancements to the federal estate and gift tax rules. The law “makes permanent” the increased lifetime estate and gift exclusion amounts – i.e. it removes the sunset provisions that have caused concern for clients over the past ten years.  Below is a summary of the key provisions now in effect, along with exact citations from the Internal Revenue Code as amended by the new law.  Remember, however, nothing is permanent – just as this law changed the current law, a new in the future can change this one!

Increased and Indexed Exclusion Amounts

Under the new law, the basic exclusion amount for federal estate and gift taxes is set at $15 million per person beginning January 1, 2025. For married couples who elect portability, the combined exemption is $30 million. This represents a substantial increase over prior law and permanently replaces the scheduled reduction that would have occurred in 2026. Beginning in 2026, the exclusion amount will automatically increase with inflation, providing continued growth and certainty for future planning.

  “For purposes of this subsection, the basic exclusion amount is $15,000,000. In the case of any calendar year after 2025, such amount shall be increased by an amount equal to $15,000,000 multiplied by the cost-of-living adjustment determined under subsection (f)(3) for such calendar year…”— 26 U.S.C. § 2010(c)(3), as amended by H.R. 1, § 11002(a)

The law also clarifies that the inflation adjustment will apply using 2024 as the base year for measuring cost-of-living increases:

  “…the cost-of-living adjustment determined under subsection (f)(3) for such calendar year shall be applied by substituting ‘calendar year 2024’ for ‘calendar year 2016’ in subparagraph (B) thereof.”— 26 U.S.C. § 2010(c)(3)(B)

Gifts Made Before 2026 Are Fully Protected

In addition to increasing the exemption, the new law also confirms that taxpayers who made large gifts before 2026 under the previously increased exclusion amounts will not be penalized later. This provision codifies prior Treasury regulations that addressed the so-called “clawback” issue, ensuring that such gifts remain fully exempt from estate tax even if the exclusion amount is lower on the date of death.

  “For purposes of applying subsection (g) to gifts made before January 1, 2026, the increased basic exclusion amount… shall apply to the extent that it exceeds the basic exclusion amount in effect on the date of the decedent’s death.”— 26 U.S.C. § 2010(f)(3), added by H.R. 1, § 70106

This offers long-term protection for clients who have already taken advantage of lifetime gifting strategies and removes the uncertainty that existed under prior law.

What This Means for You

If you are considering transferring wealth during your lifetime or preparing an estate plan, the new law significantly expands your options. The $15 million exemption per individual—indexed annually for inflation—provides one of the most generous federal transfer tax shields in U.S. history. Married couples can now shield up to $30 million without incurring federal estate or gift tax liability. Just as importantly, any large gifts you previously made remain protected.