What is the Gift and Estate Tax Exemption for 2024?
We’re halfway into 2024. So, you probably have many questions about changes in the US gift tax exclusion and how they may affect your financial planning.
Whether you're considering giving a substantial gift to a loved one or engaging in estate planning, staying informed about the latest gift tax regulations is necessary nowadays.
Read on to discover more about the gift tax exclusion for 2024 and get valuable insights for understanding this complex topic.
Gift Tax Basics
The US gift tax is a federal tax imposed when transferring money or property from one individual to another without receiving something of equal value in return.
It's important to note that the giver, not the recipient, is responsible for paying the gift tax.
Certain situations can trigger the gift tax, such as:
- Giving money or property above the annual exclusion amount.
- Executing an interest-free or low-interest loan.
You must stay informed regarding the Internal Revenue Service (IRS) gift tax rules to avoid unintended consequences.
What You Need to Know About the Gift Tax Exclusion for 2024
In 2024, the annual gift tax exclusion amount increased to $18,000 per recipient based on inflation adjustments.
This figure is a slight increase from the 2023 exclusion amount of $17,000.
What does this mean for you?
You can give up to $18,000 to any individual in 2024 without triggering the gift tax.
But that's not all. The lifetime gift tax exemption will also increase to $13.61 million for individuals in 2024, a significant increase from the 2023 exemption of $12.92 million.
How does the lifetime exemption work?
You can give away $13.61 million over your lifetime without incurring any gift tax liability.
However, you should know how the annual exclusion and lifetime exemption work together. The annual exclusion allows you to give up to $18,000 per recipient each year without using any of your lifetime exemptions.
This rule means that you’ll only pay the US gift tax after you give away $13.61 million in your lifetime and not before.
Married Couples: Maximizing the Gift Tax Exclusion
If you're married, you and your spouse can use gift-splitting to maximize your gift tax exclusion.
Gift-splitting allows each spouse to give up the annual exclusion amount to the same recipient, effectively doubling the yearly exclusion for married couples.
Gift tax exemptions double
In 2024, a married couple can give up to $36,000 to any individual without triggering the gift tax.
Moreover, the lifetime gift tax exemption for married couples in 2024 also changed to $27.22 million.
This substantial increase allows married couples to transfer significant wealth to their beneficiaries without incurring gift tax liability.
Portability
It’s worth noting that the unused portion of the lifetime exemption is portable between spouses, meaning that if one spouse passes away without using their entire exemption, the surviving spouse can claim the unused portion.
Reporting Gifts and Filing Requirements
You should know the IRS guidelines when reporting gifts and filing mandatory forms.
You must file Form 709 (Gift Tax Return) when you make a gift exceeding the annual exclusion of $18,000.
Form 709 is also required if you gift fund a trust, even if the endowment is below the annual exclusion.
Accurate record-keeping is necessary when it comes to reporting gifts. Keep track of your bequests, including the recipient, the amount, and the gift date.
Failing to report taxable gifts can result in penalties and interest charges.
Estate Planning Considerations
The gift tax and estate tax planning are closely intertwined. So, estate planners should know how they relate to their current situation.
By strategically using the gift tax exclusion, you can reduce the size of your taxable estate and transfer valuable assets to your beneficiaries during your lifetime.
Consider the following estate planning strategies involving the gift tax exclusion:
- Making annual exclusion gifts to multiple recipients.
- Utilizing the lifetime gift tax exemption to transfer significant assets.
- Establishing trusts to facilitate asset transfers and minimize tax liability.
It's always advisable to consult with an experienced estate planning attorney in Florida to discuss your specific situation and develop a tailored estate plan that aligns with your goals and maximizes gift tax exclusion benefits.
Future Changes to Gift Tax Exclusion
While the gift tax exclusion amounts for 2024 are projected based on current law, it's important to be aware of potential changes in the future.
Reversion to 2018 levels
The increased lifetime gift and estate tax exemption, implemented as part of the Tax Cuts and Jobs Act of 2017, is set to expire after 2025.
Unless Congress takes action to extend or modify the law, the exemption amount will revert to pre-2018 levels (adjusted for inflation) starting in 2026.
Plan your future gifting
This potential reduction in the exemption is why you must stay informed about legislative changes and proactively plan for the possibility of a lower exemption in the future.
An experienced estate planning lawyer can help you make these changes and adjust your estate plan accordingly.
Frequently Asked Questions about Gift Tax Exclusion
What gifts are subject to the gift tax?
Gifts of money, property, or assets that exceed the annual exclusion amount are subject to the gift tax. These gifts include real estate, stocks, bonds, and other valuable assets.
How does the gift tax exclusion apply to charitable gifts?
Charitable gifts are generally exempt from the gift tax. You can make unlimited charitable contributions without incurring any gift tax liability.
Can the annual gift tax exclusion be extended to next year?
No. You cannot carry the annual gift tax exclusion to the following year. If you don't use your annual exclusion in a given year, it's lost and does not accumulate for future years.
How do gifts to a 529 plan affect the gift tax exclusion?
Gifts to a 529 college savings plan are subject to the annual gift tax exclusion. However, you can contribute up to five years' worth of annual exclusion amounts to a 529 plan in a single year without triggering the gift tax if you make a special election on your gift tax return.
Maximize Your 2024 Gift Tax Exclusion With Guidance from Elder Needs Law
You need to know the ins and outs of the 2024 gift tax exclusion for effective financial and estate planning.
With the annual exclusion amount increased to $18,000 and the lifetime exemption rising to $13.61 million for individuals, significant opportunities exist to transfer wealth to your loved ones without incurring high liability.
That's where an experienced estate planning attorney comes into play. Elder Needs Law in Florida helps clients understand and maximize the benefits of the gift tax exclusion.
Note on Gifting and Medicaid Planning
Remember, if you or a loved one, is considering long-term care through Florida Medicaid ICP or Medicaid Waiver programs (to help pay for home or LTC facility care) then gifting, even if within IRS limits is still prohibited within five years.
Contact us for a consultation
If you have questions or want to discuss your situation, we invite you to schedule a consultation with our knowledgeable attorneys.
Our estate planning law firm offers personalized guidance and drafts comprehensive estate plans that align with your goals and minimize your tax liability.
Take control of your financial future by staying informed and seeking the advice of trusted legal professionals today.
