The IRS has recently announced its adjustments to the exemption amount for estate and gift taxes and the amount for annual exclusion gifts for 2024 due to the high rates of inflation. Here is a summary of the main points of the announcement by the IRS:
- The estate tax exemption is the amount of assets that can be transferred to heirs without paying federal estate tax. For 2024, this amount will increase to $13.61 million per individual or $27.22 million per married couple. This means that only very wealthy estates will be subject to estate tax, which can reach up to 40% of the value above the exemption.
- The lifetime gift tax exemption is the amount of gifts that can be made over a person’s lifetime without paying gift tax. This amount is unified with the estate tax exemption, meaning that any gifts above the annual exclusion will reduce the available estate tax exemption at death. For 2024, this amount will also be $13.61 million per individual or $27.22 million per married couple.
- The annual exclusion gift is the amount of money or property that can be given to another person each year without triggering gift tax or using up the lifetime gift tax exemption. For 2024, this amount will increase to $18,000 per recipient or $36,000 per recipient for married couples who elect to split their gifts. This means that individuals can reduce their taxable estate by making generous gifts to their loved ones without paying gift tax or using up their lifetime exemption.
These changes present some planning opportunities for individuals who want to minimize their estate and gift tax liability and maximize their wealth transfer to their beneficiaries. Some possible strategies include:
- Making annual exclusion gifts to multiple recipients each year, such as children, grandchildren, or other relatives and friends. This can reduce the size of the taxable estate and provide financial support or enjoyment to the recipients.
- Making gifts to spouses who are not US citizens, up to $185,000 in 2024, without using up the lifetime exemption. This can allow spouses to share assets and avoid estate tax on the first spouse’s death.
- Making gifts of appreciating assets, such as stocks, real estate, or business interests, that are expected to grow in value over time. This can remove future appreciation from the taxable estate and transfer it to the beneficiaries at a lower tax cost.
These are just some of the possible ways to take advantage of the changes in the estate and gift tax exemptions and exclusions for 2024. Of course, every individual’s situation is different and may require different approaches and considerations. Therefore, it is advisable to consult with a qualified estate planning attorney before making any significant gifts or changes to one’s estate plan.
If you would like to discuss how to best take advantage of these changes to the estate and gift tax laws for 2024, please contact John Tullio at 216-621-7860.