The IRS has announced some important updates to the federal gift and estate tax exemptions for the year 2024. These updates have significant implications for individuals and couples who are considering their estate planning strategies. Jason Marx breaks down the key details of these updates and discuss why it’s important to take action sooner rather than later.
What’s Changing in 2024?
Effective January 1, 2024, the lifetime exemption from the federal gift tax and estate tax will see a substantial increase. Here are the key numbers:
Individual Exemption: The lifetime exemption from the federal gift and estate tax will rise to $13.61 million per person (from $12.92 million per person in 2023). This means that an individual can now transfer up to $13.61 million estate tax-free during their lifetime or at the time of their death.
Married Couples: For married couples, the combined exemption amount doubles to $27.22 million. This allows spouses to transfer a significant amount of wealth without incurring federal estate or gift taxes.
Annual Gift Tax Exclusion: In addition to the lifetime exemption changes, the annual federal gift tax exclusion is also increasing. In 2024, it will rise from $17,000 per person in 2023 to $18,000 per person. This means that you can gift up to $18,000 per person annually without triggering gift tax implications. Married couples have the option to “split” gifts, effectively allowing them to gift up to $36,000 annually to an individual.
What Does This Mean for You?
The 2024 gift and estate tax exemption updates provide a unique opportunity for individuals and couples to optimize their estate planning. Here’s what you need to consider:
1. Maximizing Lifetime Exemptions
With the increased lifetime exemption, it’s now possible to transfer substantial assets without incurring federal gift or estate taxes. If you haven’t utilized your entire lifetime exemption through 2023, you have an additional $690,000 (or $1.38 million for a married couple) to gift in 2024. This presents an ideal opportunity to review your estate plan and explore options to maximize your exemptions.
2. Annual Gift Tax Exclusion Strategy
The annual gift tax exclusion also plays a crucial role in estate planning. By taking advantage of this provision, you can make annual gifts to loved ones without dipping into your lifetime exemption. With the 2024 increase to $18,000 per person (or $36,000 for married couples), you can transfer assets while reducing your taxable estate.
3. Consider the Future
It’s essential to be aware of the potential changes on the horizon. The federal gift and estate tax exemption amounts, established by the 2017 Tax Cut and Jobs Act, are scheduled to expire on December 31, 2025. Unless the federal government takes action, the exemptions will revert to $5.6 million per person, adjusted for inflation, beginning January 1, 2026. The outcome of the 2024 elections may also influence these exemptions. Therefore, it’s wise to consider planning now while the exemption amounts are higher, and perhaps even earlier in the year to ensure you make the most of this opportunity.
The 2024 lifetime federal gift and estate tax exemption update brings significant changes that can impact your estate planning strategy. With the generous increases in exemptions, individuals and couples have the chance to pass on more wealth to their heirs without facing hefty estate taxes. However, the potential for changes in the future underscores the importance of proactive planning. Consulting with a member of the Tax, Trusts and Estates Practice Group at Mandelbaum Barrett PC is advisable to navigate these complex matters and make informed decisions that align with your financial goals and family legacy aspirations. Don’t miss this opportunity.