Lifetime Exemption

The 2026 figure

$15 million per individual, or $30 million per couple with portability. Made permanent by the OBBBA in 2025 and indexed annually for inflation.

How it works

Every gift above the annual exclusion amount reduces your lifetime exemption:

Year 1: You give your son $100,000 above the annual exclusion. Your remaining exemption: $15M − $100k = $14.9M.

Year 5: You give each of your three children $1M above annual exclusion ($3M total). Remaining: $14.9M − $3M = $11.9M.

Year 10: You die with a $12M estate. Your remaining exemption is $11.9M. Your taxable estate is $100k. Tax at 40% = $40k.

No gift tax was owed during life because you stayed within your lifetime exemption. Estate tax at death was based on what was left.

Reporting

Gifts above annual exclusion require Form 709 (gift tax return) each year, tracking cumulative use of the exemption. No tax is actually paid until the $15M is exhausted.

The IRS maintains your lifetime exemption use via these annual 709 filings. Estate tax return Form 706 at death adds the final estate value and determines any remaining tax owed.

Using exemption to move appreciation

One of the strongest reasons to use lifetime exemption is to move future appreciation out of the estate.

Example: You have $5M in a business interest that's growing 10% per year.

• Scenario A: Hold until death in 20 years. Value: $5M × 1.10^20 = $33.6M. Taxable estate includes all $33.6M.
• Scenario B: Gift the $5M now. Uses $5M of lifetime exemption. After 20 years, recipient has $33.6M in their own name; your estate is reduced by $5M (plus all $28.6M of appreciation).

Same starting gift; very different estate tax outcome. The $28.6M of appreciation is now outside your estate entirely.

Using exemption for low-basis assets

If your estate is well above the exemption, gifting low-basis assets may be worthwhile despite losing the step-up:

• $1M position with $100k basis.
• At death, estate tax at 40% = $400k. But heir gets step-up; selling produces $0 gain.
• If gifted now (uses $1M exemption), no estate tax on this asset. Heir's basis is $100k; selling produces $900k gain, taxable at 20% = $180k.
• Net savings: $400k estate tax − $180k capital gains = $220k saved.

For estates below the exemption, the analysis reverses — the step-up typically beats lifetime gifting.

Anti-clawback rules

A concern in 2017 when the exemption doubled under TCJA: what if someone used the higher exemption, then the exemption dropped before they died? Would the IRS claw back the difference?

Treasury issued regulations in 2019 confirming that exemption used at the higher level is not clawed back if the exemption is later reduced. Gifts made under higher exemptions remain protected.

This matters for OBBBA planning. Although the $15M is "permanent," future legislation could reduce it. People who use their exemption now are protected against that reduction.

SLATs, GRATs, and other structures

The lifetime exemption can be used through various trust structures:

SLAT (Spousal Lifetime Access Trust). You gift into an irrevocable trust for your spouse's benefit. Uses your lifetime exemption. Your spouse can access the trust for needs during life; assets pass to your children at your spouse's death (outside both of your estates). If the marriage survives, you indirectly retain access through your spouse.

GRAT (Grantor Retained Annuity Trust). You place assets in a trust, receive an annuity payment back over a term, and the remainder passes to beneficiaries. If the trust investments outperform the IRS-set interest rate (the 7520 rate), the excess passes estate-tax-free. Zero-tax GRATs ("Walton GRATs") use very small remainder amounts and are widely deployed.

ILIT (Irrevocable Life Insurance Trust). Trust owns life insurance. Premiums paid via annual exclusion Crummey gifts. Death benefit passes outside estate.

QPRT (Qualified Personal Residence Trust). Gift your home to a trust, retain the right to live there for a term, then the home passes to beneficiaries. Uses a fraction of full value (discounted for retained interest).

Each of these has technical requirements and costs. They become worth considering for estates significantly above the exemption.

The "use it now" calculus

Should you use lifetime exemption before you need to?

Arguments for using now:

• Appreciation from now to death is removed from the estate.
• Anti-clawback protects past use if exemption is later reduced.
• Better control over timing (you choose when, not the market).
• May enable specific recipients who need it (adult children in their peak earning years).

Arguments for waiting:

• Complexity and cost of current planning.
• Step-up in basis at death eliminates capital gains.
• You may need the assets yourself.
• Future changes in law may be favorable.

Most planners recommend at least partial use of exemption during life for estates significantly above it ($30M+ for couples), with specific structures chosen based on goals.

How Horizons uses this

Horizons tracks lifetime exemption use in your estate forecast. If you set specific lifetime gifts in the Gifting Strategy tab, the engine applies them against the exemption and reduces the final estate accordingly. The tool can model "what if I use $5M of exemption in 2028" and show the downstream tax savings.