Written by Robert Moore
The federal estate tax exemption is set to drop dramatically in 2026—from $13.99 million in 2025 to an estimated $7–$7.5 million per person. For some farm families, this shift could result in significant estate tax exposure. While most estates won’t exceed the new limit, some farmers, especially those with high-value farmland or appreciating assets, will find themselves suddenly at risk of federal estate taxes.
Gifting is one strategy to reduce the size of your taxable estate, but it’s not always simple or risk-free. Let’s explore when gifting can help, when it might not, and what to watch out for.
Two Types of Gifts
There are two main gifting categories under federal law:
- Annual Exclusion Gifts – In 2025, you can gift up to $19,000 per recipient ($38,000 for couples) annually without using any of your lifetime exemption.
- Lifetime Credit Gifts – Larger gifts are allowed, but they reduce your lifetime estate tax exemption. The lifetime estate tax exemption is the amount of wealth that the IRS exempts from estate taxes. The exemption can be used at death, gifted away during life, or a combination of the two.
Example: If a parent gifts a $1,019,000 farm to a child, the first $19,000 is exempt from taxes and does not reduce the parent’s estate tax exemption. The remaining $1,000,000 reduces the parent’s lifetime estate tax exemption from $13.99 million to $12.99 million.
