The new year ushers in significant adjustments to the federal gift, estate, and generation-skipping transfer (GST) tax rules, reflecting inflation adjustments that substantially increase exemption amounts. These changes are crucial for individuals and families to understand as they reassess their estate and gifting strategies to maximize tax benefits.
For 2024, the IRS has increased the federal estate tax and GST tax lifetime exemption amounts by $690,000 for individuals, bringing the total to $13.61 million up from $12.92 million in 2023. For married couples, the exemption has risen by $1.38 million to $27.22 million. These adjustments provide an opportune moment for taxpayers to enhance the tax efficiency of their wealth transfers.
The generation-skipping tax, aligned with the estate tax exemption, allows assets to be transferred directly to grandchildren or in trust for their benefit, helping families circumvent the double imposition of estate taxes across generations.
This year’s increase not only presents a valuable chance for families to refine their financial plans with experts but also carries a note of urgency. The current exemption amounts, nearly doubled by the Tax Cuts and Jobs Act of 2017, are scheduled to revert to their previous levels after December 31, 2025, unless new legislation is enacted. If the law expires, the exemption amounts would approximately halve.
Additionally, the federal gift tax annual exclusion has risen nearly 6% to $18,000 per donee, up from $17,000. This adjustment further facilitates tax-efficient wealth transfers and applies to GSTs as well, encouraging timely and strategic gifting to maximize estate preservation and intergenerational wealth transfer.
With the current high exemption limits, families have a window until the end of 2025 to implement gifting strategies that could potentially save millions in federal taxes. Among these strategies is the use of annual gifting, which allows an individual to gift up to $18,000 per recipient in 2024 without impacting their lifetime estate or gift tax exemptions. Gifts exceeding this annual limit would count against the lifetime exemption, and amounts over $18,000 require the filing of a gift tax return.
The report also outlines various trust options as strategic vehicles for leveraging tax exemptions. These include:
Lifetime Irrevocable Trusts: Where assets transferred into the trust are considered gifts, thus applying annual gift tax exclusions and lifetime exemptions.
Grantor Retained Annuity Trusts (GRATs): These allow the grantor to transfer assets while retaining the right to yearly annuity payments, with remaining assets passing tax-free to beneficiaries at the end of the term.
Spousal Lifetime Access Trusts (SLATs): These permit one spouse to gift assets to a trust for the benefit of the other spouse, utilizing the lifetime gift exemption while removing assets from the grantor’s taxable estate.
These strategic measures underscore the importance of consulting with financial professionals to tailor estate planning to individual needs, especially considering the varying estate and gift tax landscapes at the state level.
In sum, the enhanced federal tax exemptions present a critical opportunity for strategic estate planning and wealth transfer before potential changes in 2026. Now is an advantageous time for taxpayers to review and adjust their estate plans to secure optimal outcomes for their financial legacies.
