Understanding Federal Gift and Estate Taxes
The Internal Revenue Service (IRS) considers any transfer of assets — whether cash, property, or other valuables — from one person or estate to another a taxable event. These taxes, called gift taxes and estate taxes, can affect how much of your wealth reaches your heirs.
Fortunately, most people never pay these taxes because the IRS sets very high exemption limits. Only a small percentage of all gifts and inheritances exceed these thresholds and result in a tax bill.
Tax Exemptions and Recent Changes
Gift and estate tax exemption limits shift over time based on federal policies. In 2022, many expected these limits to drop under the Build Back Better Act, which would have taxed smaller estates and gifts. Instead, the IRS raised the limits, giving families an opportunity to transfer more assets tax-free. These higher thresholds will remain in effect until 2026, when they are scheduled to revert to the lower 2012 levels unless Congress steps in again.
This temporary window allows higher-net-worth individuals to shield more wealth from taxes with smart estate planning. Keep in mind: the gift-giver pays gift taxes, and the estate pays estate taxes before distributing assets to heirs. Additionally, some states impose their own estate or inheritance taxes, which you must factor into your planning.
Current Estate Tax Limits (2022)
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Individuals: Can transfer up to $12.06 million tax-free.
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Married Couples: Can transfer up to $26.12 million combined.
Any amount above those limits is taxed at a graduated rate. For example, if an estate totals $12.07 million, the IRS taxes only $10,000 — roughly 20%. A $15 million estate would owe taxes on nearly $3 million, at rates as high as 40%.
Planning for 2026 and Beyond
Because no one knows when their estate will transfer, planning early is critical. If no new legislation passes, the exemption will fall back to roughly $5 million per person (adjusted for inflation) in 2026. Families with large estates should take action now to avoid unnecessary taxes and secure their legacy.
📞 Need help with estate tax planning?
Our team can create strategies to protect your assets and maximize what your heirs receive. Call us at (207) 848-5600 or visit our CONTACT page to schedule a consultation.
