by Shaila Buckley and Rachel Murhy

Most Idahoans do not have to worry about leaving their loved ones with a bill for estate taxes after they pass.  Since Idaho does not have a state estate tax, the only estate tax Idahoans must consider is the federal estate tax. But as of 2024, the federal gift and estate tax exclusion – which is the amount of assets an individual can gift during their lifetime or leave to their loved ones on their death without paying any gift or estate taxes – is at historically high levels. In 2024, the gift and estate tax exclusion amount is $13.61 million per person.^[1] This means that if an individual dies in 2024, they can pass $13.61 million dollars to their loved ones free of estate taxes (assuming they did not make any lifetime gifts).

At the end of 2025, however, the exclusion amount will reduce to approximately $7 to $8 million per person unless Congress passes legislation to keep the exclusion at its current level.^[2] Married couples enjoy the special benefit of being able to combine their individual exclusions, which will give them $14 to $16 million to gift during their lifetimes or leave on their death without owing estate taxes. But, short of heading to the altar, how can unmarried individuals, who do not receive this privilege, plan for the potential reduction in the exclusion amount?

While we cannot predict what Congress will do, if an individual is unmarried and has an estate valued at more than $7 to $8 million, there are a range of options available to mitigate potential estate taxes. These options involve weighing a variety of factors, including short-term and long-term tax consequences, the individual’s goals, and the current and projected value of their estate. These strategies also are available to married couples but, given that married couples can combine their exclusions, married couples are less likely to need to take advantage of these strategies. This article therefore focuses on helping unmarried individuals.

Make Annual Gifts

Each year, an individual can make annual gifts up to an amount set by Congress, called the “annual exclusion amount,” without having to report the gift to the IRS. In 2024, the annual exclusion amount is $18,000 in total gift value.^[3] This means an individual can make gifts valued at up to $18,000 each to as many people as they want without filing a gift tax return or using up any of their lifetime gift and estate tax exclusion amount.

Making annual gifts up to the annual exclusion amount is a good way to transfer assets from an individual’s taxable estate to their beneficiaries. For example, if an individual has two married children, each of whom has four children, they can gift $18,000 to each of their children, each of their children’s spouses, and each of their four grandchildren. This would remove $144,000 from their taxable estate ($18,000 x 8).

If an individual is trying to reduce a taxable estate, this may seem like a small amount on an annual basis. But these annual gifts can add up over time, especially if an individual has a large family. Taking the previous example, if an individual gifted $144,000 to their family each year over a 10-year period, they would move $1.44 million dollars out of their taxable estate, resulting in a potential estate tax savings of more than $500,000.

Pay a Loved One’s Educational Tuition or Medical Expenses

Another option for moving assets out of an individual’s taxable estate during their lifetime is to pay for a loved one’s educational tuition or medical expenses. Payments for tuition or medical expenses for another person, no matter how high the amount, do not count against the gift and estate tax exclusion.^[4] When it comes to paying tuition, the payments are not limited to college or other higher institutions. Private grade schools, private high schools, and even nursery schools all qualify.

For example, if an individual’s grandchild goes to Harvard for college, they can pay their annual tuition of $55,000 each year for four years, moving $220,000 out of their taxable estate.  If the grandchild then goes to Harvard for law school, an individual can move another $75,000 each year for three years, further reducing their taxable estate by $225,000.

Note that payments of tuition and medical expenses must follow certain rules to qualify for exclusion. First, “tuition” cannot include charges for room, board, or other expenses.^[5] Second, an individual must make all payments directly to third parties, not to the person they wish to help. For example, if an individual is paying for someone’s medical expenses, they must pay the healthcare provider or medical facility directly.^[6] If an individual is paying tuition, they must pay the educational institution directly.^[7] An individual cannot reimburse someone for expenses that have already been paid.

Make Charitable Donations During Your Lifetime or Leave Assets to Charities After Your Death

Donations to charitable organizations are another way to reduce the size of an individual’s taxable estate. Charitable donations are not subject to gift or estate taxes. An individual may donate as much as they want to charities each year with no gift tax implications.^[8]  If an individual donated $100,000 to charity each year, over a 10-year period they would move $1 million out of their taxable estate.

In addition, any assets an individual leaves to charitable organizations on their death as part of their estate plan are excluded from their taxable estate. For example, if an individual dies in 2024 with an estate valued at $14.61 million, they would owe estate taxes on $1 million (the amount of their estate that is above the $13.61 million gift and estate tax exclusion).  However, if an individual leaves $1 million to one or more charities, their estate will owe no estate taxes. This is because the $1 million charitable donation is deducted from their taxable estate, reducing it to $13.61 million.