The new year inevitably brings changes to the federal estate tax exemption and gift tax exemption amounts, which continue to rise with inflation.
Specifically, on January 1, 2024, the federal estate tax exemption amount will increase to $13.61 million, up from $12.92 million in 2023. A married couple can combine this amount for a total $27.22 million exemption. What this means is that, if you die with an estate larger than the federal estate tax exemption amount, as of the year of your death, then a federal estate tax would be due on the amount exceeding the exemption. Of course, the federal estate tax presently only affects a small portion of the population.
Additionally, you can gift up to a certain amount to an individual on an annual basis, which is referred to as the gift tax exemption amount. On January 1, 2024, the gift tax exemption amount will increase to $18,000, up from $17,000 in 2023. A married couple, filing jointly, can combine this amount to $36,000 gift tax exemption per individual. If a person gifts more than the annual gift tax exemption amount, they need to report the gift to the IRS by filing a gift tax return. This does not necessarily result in the imposition of a tax. In fact, you also have a lifetime gift exemption amount, which is the same amount as the federal estate tax exemption amount ($13.61 million in 2024). This means that you can gift up the lifetime gift exemption amount over the course of your lifetime before you would trigger a tax.
However, the exemption amounts are scheduled to dramatically decrease – essentially be cut in half – by 2026, to approximately $6 million. This is a significant consideration to those whose net worth is close to this amount and, therefore, careful tax planning may be necessary in their estate plan.
If you and your spouse need to review your estate plan in order to ensure that you have the appropriate tax planning in place, please contact our office to schedule a consultation with one of our knowledgeable attorneys today.