Gift, Estate and GST Tax Exemption Increases for 2024
The federal gift and estate tax exemption is the amount that an individual can give to other people without triggering gift tax during life or estate tax upon death. In 2023, the federal estate, generation-skipping transfer (GST) and gift tax exemption amounts are $12,920,000 per person. These exemption amounts, as well as the annual exclusion amount, will increase for inflation in 2024, as follows:
The federal estate tax exemption will be $13,610,000 ($690,000 increase), with a 40% top federal estate tax rate;
The GST tax exemption will be $13,610,000 ($690,000 increase), with a 40% top federal GST tax rate;
The gift tax exemption will be $13,610,000 ($690,000 increase), with a 40% top federal gift tax rate;
The annual gift tax exclusion will be $18,000 ($1,000 increase) per donee.
It is important to note that the increased exemption amounts are scheduled to sunset on December 31, 2025 (two years from now), when the gift, estate and GST tax exemptions are set to return to a $5 million exemption (inflation-adjusted).
Under current law, these increased exemptions create opportunities to make larger lifetime gifts, leverage more assets through a variety of estate planning techniques, and shift income-producing assets to individuals in lower income tax brackets.
Individuals who used substantially all of their exemptions should consider making additional lifetime gifts to take advantage of the increased exemptions before they sunset at the end of 2025.
Annual Exclusion Amount Increases for 2024
In 2024, the gift tax annual exclusion amount per donee will increase to $18,000 for gifts made by an individual and $36,000 for gifts made by a married couple who agree to “split” their gifts.
In 2023, you have until December 31, 2023 to take advantage of your remaining 2023 gift tax exclusion amount of $17,000 for gifts made by an individual and $34,000 for gifts made by a married couple who agree to “split” their gifts.
In lieu of cash gifts, consider gifting securities or interests in privately held companies or family-owned entities. The assets that you give away now may currently be depressed in value or have a built-in discount for gifting purposes, which can inure to the benefit of your beneficiaries if the value of those assets appreciate over time.
Your annual exclusion gifts may be made directly to your beneficiaries or to trusts that you establish for their benefit. Note, however, that gifts to trusts will not qualify for the gift tax annual exclusion unless the beneficiaries have certain limited rights to the gifted assets (called “Crummey” withdrawal powers). If you have created a trust that contains Crummey withdrawal powers, it is critical that your Trustees send Crummey letters to the beneficiaries whenever you make a contribution to the trust.
Likewise, if you have an irrevocable life insurance trust, any amounts contributed to the trust to pay insurance premiums are considered gifts to the trust. As a result, the Trustees must send Crummey letters to the beneficiaries to notify them of their withdrawal rights over these contributions. Without these letters, transfers to the trust will not qualify for the gift tax annual exclusion, and the trust assets may be includible in your estate for estate tax purposes.
If we can be of assistance with respect to any matters covered in this update, such as (i) creating or updating your estate plan, (ii) preparing gift tax returns, (iii) drafting Crummey letters, (iv) or implementing trusts to receive gifts using your annual exclusion or lifetime exemption amounts, please contact us.