In the ever-evolving landscape of estate planning, staying informed about tax regulations is crucial. The IRS has announced a significant update for 2024: the estate tax exclusion is set to increase from $12.92 million in 2023 to $13.61 million.
This change not only impacts estate taxes but also extends to lifetime gifts, thanks to the unified nature of the estate and gift tax system. Additionally, the annual per-person exclusion is rising from $17,000 in 2023 to $18,000 in 2024. Let’s delve into what these changes mean for estate planning.
Understanding the Estate Tax Exclusion Increase
The estate tax exclusion increase is a reflection of adjustments for inflation. This change means that an individual can leave or gift up to $13.61 million without incurring federal estate or gift tax.
For couples, this effectively doubles the amount, allowing a significant portion of wealth to be transferred tax-free. This increase provides an opportunity for strategic planning, especially for high-net-worth individuals looking to minimize their taxable estate.
The Unified Estate and Gift Tax System Explained
It’s important to understand that the estate and gift taxes are unified. This means the total amount you can transfer tax-free during your lifetime or at death remains the same. If you use part of your exclusion for lifetime gifts, this reduces the amount available for your estate tax exclusion.
For instance, if you gift $1 million in your lifetime, your available estate tax exclusion would be reduced to $12.61 million, given the 2024 threshold.
Annual Per-Person Exclusion: A Valuable Tool
The annual per-person exclusion is a separate consideration. It allows you to give up to $18,000 per year to any number of people without eating into your lifetime estate and gift tax exclusion.
This increase from $17,000 in 2023 to $18,000 in 2024 offers an additional avenue to transfer wealth. For example, if you have three children, you could gift each of them $18,000 annually, transferring a total of $54,000 tax-free each year without reducing your lifetime exclusion.
Strategies to Leverage the Increased Exclusions
- Lifetime Gifting: With the increased lifetime exclusion, consider making substantial gifts in 2024. This not only helps reduce your taxable estate but also allows you to witness the benefits of your generosity during your lifetime.
- Utilize Annual Exclusions: Make full use of the annual per-person exclusion to systematically reduce your estate. Over time, these gifts can significantly decrease the size of your taxable estate.
- Trust Planning: Consider setting up trusts to take advantage of the increased exclusions. Trusts can be a powerful tool for estate planning, offering control over how your assets are distributed while providing potential tax benefits.
- Family Limited Partnerships (FLPs): FLPs can be an effective way to manage and transfer family wealth, especially with the increased exclusions. They allow for the transfer of business interests at lower valuations, reducing the taxable estate.
- Review Your Estate Plan: With the new exclusions, it’s crucial to review your existing estate plan. Adjustments may be necessary to optimize the benefits of these changes.
Added note: The exclusion is being reduced to the 2017 level of $5.49 million indexed for inflation in 2026 when a provision in the tax cuts Tax Cuts and Job Act expires. This ratchets up the sense of urgency to use the expanded exclusion while it is still available.
Navigating the Changes with Professional Help
The intricacies of estate and gift tax laws can be complex. Seeking guidance from a professional estate planning attorney is advisable. They can help tailor a plan that maximizes these new thresholds and aligns with your overall financial goals.
Conclusion: Embrace the Opportunities
The increase in estate and gift tax exclusions for 2024 opens up new possibilities for estate planning. Whether it’s through lifetime gifting or utilizing annual exclusions, these changes offer valuable opportunities to protect and transfer wealth efficiently.
By understanding these updates and strategizing accordingly, you can ensure that your legacy is preserved and passed on according to your wishes, with minimal tax implications.
We Are Here to Help!
Our firm can help you develop a plan that provides estate tax efficiency if taxation will be a factor for you. And if it is not, we can develop a custom-crafted plan that ideally suits your specific needs.
To set the wheels in motion, call our Oklahoma City estate planning office at 405-843-6100. We also have an office in Tulsa, and the number there is 918-615-2700. In addition, we have a contact form on this site you can use to send us a message.
After helping his own family deal with a lengthy probate and the IRS following his father’s untimely death in a farm accident, Larry Parman made a decision to help families create effective estate plans designed to reduce taxes, minimize legal interference with the transfer of assets to one’s heirs, and protect his clients’ assets from predators and creditors.