Federal Tax Rates for Trusts & Estates and Exclusion Amounts in 2025

This week we continue our review of Revenue Procedure 2024-40, where the IRS revealed relevant tax rates and numbers that will be effective for 2025. While last week focused on tax rates for individuals, i.e. human beings, this week we’ll look at information relevant to trusts & estates.

Estate Tax and the Basic Exclusion Amount

The Estate Tax is a tax triggered by the death of an individual. The amount of tax due is offset by what is called the “basic exclusion amount.” It is called the basic exclusion amount because it is the value of the decedent’s estate that is excluded when calculating the amount of Estate Tax owed. Thus, if the entire value of your estate is less than the basic exclusion amount, the entire value of your estate is excluded under the basic exclusion amount, and you would not owe any Estate Tax upon death.

In 2025, the basic exclusion amount is $13,990,000. Thus, any estate valued under this amount should not owe any federal estate tax.

Under the current portability regime, this means the maximum exclusion amount for a surviving American citizen spouse, assuming the deceased spouse was an American citizen and did not use any of their federal exclusion amount is $27,980,000.

Annual Exclusion for Gifts

The Gift Tax is a tax triggered by a transfer in which the person making the gift does not receive full consideration in return. Like the Estate Tax, the amount of Gift Tax due is offset by a certain amount. In the Gift Tax context, this amount is called the Annual Exclusion. It is called the Annual Exclusion because it is the value of the gift that is excluded when calculating the amount of Gift Tax due in a calendar year.

Thus, if during the calendar year, the entire value of your gift is less than the amount of the Annual Exclusion, you should not owe Gift Tax on your gift.

In 2025, the Annual Exclusion is $19,000. Thus, any gift to any person under this amount should not trigger any federal gift taxes.

Married couples are allowed to combine their Annual Exclusion limits and make a gift twice the size of the Annual Exclusion without triggering any Gift Tax obligations. This practice is called gift-splitting. With the Annual Exclusion being $19,000 in 2025, this means that the maximum amount a married couple may gift through gift-splitting is $38,000.

While transfers between two U.S. citizen spouses are exempt from all gift taxes, that is not the case between a U.S. citizen spouse and a non-U.S. citizen spouse. In 2025, first $190,000 of gifts to a non-U.S. citizen spouse are are not included in the total amount of taxable gifts made during that year.

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