Understanding the Estate & Gift Tax Exemption
The Estate Tax and Gift Tax are federal levies imposed on the transfer of an individual’s wealth upon their demise or when a gift surpasses the exempted amount during the donor’s lifetime. Typically, any transfer beyond this exemption threshold incurs a tax rate of 40%.
The annual exclusion for gifts is set to rise to $18,000 per person for the 2024 calendar year, marking an increase from $17,000 in the previous year. For married couples, this enhancement allows for a combined gifting capacity of $36,000 per year per recipient, effective January 1, 2024. This adjustment presents an advantageous opportunity for strategic estate planning, enabling individuals and couples to leverage this heightened exclusion for efficient wealth management. Seize this expanded limit to optimize your financial planning and consider its implications for your gifting strategies.
Effective January 2024, the federal Estate & Gift Tax exemption is slated to increase by $690,000, reaching $13,610,000 per person (compared to the 2023 exemption of $12,920,000). For couples, this translates to a combined exemption of $27,220,000 for the year 2024. This elevated exemption shields a vast majority of estates from federal estate taxes. Yet, it’s important to note that tax laws remain subject to alterations, particularly influenced by evolving administrations and shifts in political priorities.
The 2026 estate tax exemption sunset provision looms as a potential game-changer for numerous estates. Should no new legislative action take place by January 1, 2026, the exemption is set to revert to the pre-2018 amount of $5,000,000, adjusted for inflation (projections estimate around $6,200,000) per person.
Understanding the Significance of the Estate Tax Exemption Sunset
Impact on High-Value Estates:
A reduction in the estate tax exemption could significantly affect high-value estates. A lowered exemption might subject more estates to federal estate taxes.
Tax Planning Strategies:
Should the expected exemption sunset in 2026 materialize, individuals and families with substantial wealth will need to reconsider their estate planning strategies before 2026. This could involve adjustments to revocable and irrevocable trusts, gifting methods, and other estate planning mechanisms aimed at minimizing tax liabilities and leveraging the current higher estate and gift tax exemptions.
As the year 2024 draws closer, it becomes crucial for high-net-worth individuals and families to remain abreast of potential alterations in tax laws and collaborate closely with financial experts. If you, a friend, or family members are looking to create a living trust, contact us to schedule a complimentary consultation.