The new year is upon us, and with that, the federal government has issued new numbers for the credit equivalent against federal estate and gift tax. For years, I have called the federal gift and estate tax a boogeyman because the tax affects so few people, yet everyone worries about it.

New Jersey had an estate tax, but in 2017, the State effectively eliminated its tax. To make up for the lost revenue, the State increased the tax on gas. Now, instead of a minority of people paying estate tax, everyone, every day, pays more in gas tax. New Jersey never imposed a gift tax.
The federal government still has an estate tax. The federal government also has a gift tax. The federal estate and gift tax is a unified tax system, meaning that certain gifts you make during lift can affect the tax your estate will pay after your death.
Every taxpayer receives a lifetime credit equivalent against the federal estate and gift tax. In 2025, the lifetime credit equivalent will be $13,990,000. You are not reading that incorrectly. Each of us receives a credit equivalent to nearly $14,000,000 against the federal estate and gift tax. A married couple can easily shelter twice that amount or $27,980,000.
If the $13,990,000 ($27,980,000 married couple) credit were not enough for you (and your spouse), a taxpayer can also give away more money without affecting his lifetime credit. In 2025, each of us can give away $19,000 to an unlimited number of people without reducing the lifetime credit against estate and gift tax. This $19,000 credit is called the annual exclusion amount.
For example, assume that Mr. Smith gives $19,000 to 100 people; the 100 people do not have to be related to Mr. Smith. Seeing one more person, Mr. Smith gives $20,000 to the 101st person. The last gift of $20,000 exceeds the annual exclusion amount by $1,000. That $1,000 reduces Mr. Smith’s lifetime credit equivalent against federal estate and gift tax from $13,990,000 to $13,989,000. Now, Mr. Smith can only die with $13,989,000 without paying estate tax.
For some reason and I have never understood it, almost everyone is concerned that they will have to pay gift or estate tax at some point in their life. Having more than $13,990,000 would put you in the top 1% of net worth, which means that 99% of people do not have a net worth of $13,990,000; furthermore, many people with a high net worth are married, meaning they can shelter $27,980,000 from estate tax. When I ask my clients if they have more than $14,000,000, I am almost universally met with a chuckle and a “I wish,” so if you are not worth $14,000,000, don’t worry; you aren’t alone.
If you give a gift of more than $19,000 to a given person ($38,000 for a married couple), you have to file a federal gift tax return, IRS form 709. There is no gift tax owed unless you have completely eliminated your lifetime credit of $13,990,000. The filing of the gift tax return is merely a reporting requirement.
The giving of a gift has nothing to do with income tax. The gift tax return, IRS form 709, is a completely separate return than the income tax form, IRS form 1040. The receipt of a gift is never taxable, so the person to whom you give the gift does not have to report anything.
In 2026, the credit against federal estate tax is scheduled to be reduced to approximately $8,000,000 for an individual ($16,000,000 for a couple). In 2026, the tax law the federal government passed under the first Trump Administration is scheduled to expire; however, now that Donald Trump will be the next president, my guess is not only will the tax law not expire but if anything the credit against federal estate tax will be raised even higher. I would not be surprised if the estate tax is eliminated under a second Trump Administration.
In a way, I think a repeal of the estate tax would be great because so many people unnecessarily worry about the estate tax. In another way, I wonder if the average person is going to end up paying more tax somewhere else just as we did when New Jersey eliminated its estate tax. As much as we hate taxes, it is how the government makes money, and when we need them, we all love the things the government brings (Social Security, a strong military, stability, roads, clean water, etc.).