The IRS has announced a notable increase in the estate and gift tax exclusion for 2024. FYI, the exclusion or credit is an amount that can be transferred before the tax would be applicable on the remainder.
The new threshold is set at $13.61 million, up from $12.92 million in 2023. This change, made to keep pace with inflation, significantly impacts those dealing with large estates or considering substantial lifetime gifts.
Unified Gift and Estate Tax Structure
It’s important to recognize that gift and estate taxes operate under a unified system. This means the increased exclusion for 2024 applies equally to both lifetime gifts and estate transfers. Understanding this unification is crucial for individuals in their estate planning strategies.
Rise in Annual Gift Tax Exemption
The new year also marks an increase in the separate annual gift tax exemption. The exemption will grow from $17,000 to $18,000, allowing for greater tax-free gifting each year.
To clarify, this exemption sits apart from the unified multimillion-dollar exclusion. Next year, you will be able to give as much as $18,000 to any number of gift recipients without using any of your unified exclusion to give the gifts tax-free.
Anticipating Changes Post-2026
Looking beyond the immediate future, the Tax Cuts and Jobs Act’s provisions are set to expire in 2026. This expiration will revert the estate tax exclusion back to the 2017 level of $5.49 million, adjusted for inflation. Anticipating and planning for this future change is vital for long-term estate planning.
Estate Planning Strategies for 2024
With these changes on the horizon, revisiting and potentially updating your estate plan is advisable. The temporary nature of these increases makes it crucial to act promptly. Engaging with estate planning professionals can ensure that you are making the most of the current tax benefits.
Tax Optimization Through Strategic Planning
The impending changes offer a window of opportunity for tax optimization. Individuals should consider strategies like making significant lifetime gifts or setting up trusts to take advantage of the higher exclusions. These actions can lead to considerable tax savings under the current law.
California State Estate Tax?
You may have heard about the existence of state-level estate taxes. There are actually 12 states in the union that have their own estate taxes, but fortunately, California is not one of them.
However, before you do a victory lap, there is a consideration. Let’s say that you own a large tract of land in Oregon. There is an estate tax there within exclusion of just $1 million. Therefore, that property would be subject to the Oregon estate tax if its value exceeds $1 million.
Conclusion: Proactive Planning is Essential
The evolving tax landscape requires a proactive approach to estate planning. The increases in 2024 present new opportunities, but also highlight the need for flexibility and foresight in planning. Seeking advice from estate planning attorneys is more important than ever to navigate these changes and secure your financial legacy.
Important Points to Remember
- Estate tax exclusion increases to $13.61 million in 2024.
- The annual gift tax exemption will be $18,000.
- After 2026, the exclusion is expected to return to the 2017 level, considering inflation.
- Updating estate plans in light of these changes is crucial.
- Consult with an estate planning attorney to develop effective strategies and ensure compliance with tax laws.
Take Action Today!
We can help you put a plan in place whether you are concerned about estate taxes or not. Personalized attention is the key to a properly constructed plan, and this is what you will receive when you choose our firm.
You can call us at 818-937-2335 to set up a consultation at our Burbank, California estate planning office, and you can alternately send us a message through our contact page.