Each year, the IRS adjusts the limits for the amount of tax-free annual and lifetime gifts an individual can make. The Federal estate tax lifetime exemption is the amount an individual can leave to his or her heirs without having to pay Federal estate tax. The annual gift tax exclusion is the amount an individual can gift each year to another individual without using up their lifetime exemption. Beginning January 2015, the IRS has adjusted for inflation the federal estate tax lifetime exemption amount. The exemption amount has increased from $5.34 million to $5.43 million. The combined lifetime exemption amount has also increased for married couples, rising from $10.68 million to $10.86 million. With the Federal estate tax rate at 40%, it becomes critical to plan to avoid estate taxes if you are an individual with higher wealth exceeding the lifetime exemption.