Advanced Planning Topic: 2024 Tax Update

Advanced Planning Topic: 2024 Tax Update

As we begin 2024 it’s important to review tax law changes and to consider certain planning opportunities that could be beneficial.


The Lifetime Exemption and Annual Exclusion

Effective January 1, 2024, the following federal estate law changes went into effect.

  • The Federal Estate Tax Exemption amount increased from $12,920,000 to $13,610,000
  • The annual gift exclusion increased from $17,000 to $18,000


Taking Advantage of the 2024 Increases

For those who have used their Exemptions, they may gift the newly acquired $610,000.  In addition, they may also increase their annual gifts from $17,000 to $18,000 ($36,000 for married couples).


2026 Scheduled Decrease of Exemption Provides Current Opportunity

Although the Federal Estate Tax Exemption has been increasing, it is scheduled to decrease to $5,000,000 at the end of 2025.  With an inflation adjustment (to $5,000,000), it’s anticipated that the new Exemption amount will likely end up being about $7,000,000.  A $6,610,000 decrease in Exemption would cause an additional estate tax of $2,974,500 for individuals with a taxable estate of at least $13,610,00 (or $5,949,000 for married couples with a taxable estate of $27,220,00).   For many, the solution is to use the current Exemption while the client still has it.  Gifts to Trusts for children is one approach.  Another, for an individual who is married, is to make gifts to his or her spouse in a manner where he or she maintains access to the gifted assets while the spouse is living – a technique known as the Spousal Limited Access Trust (i.e. a “SLAT”).   For clients not comfortable gifting, we have helped them utilize life insurance strategies to reduce the impact of the tax.


Higher Interest Rates Create Opportunities

Higher interest rates have had a negative effect on several estate planning strategies.  However, they have also made several estate planning strategies more appealing.

For example, the Charitable Remainder Trust (“CRT”) and the Qualified Personal Residence Trust (“QPRT”) are strategies to consider.  For CRTs, higher interest rates result in a larger income tax deduction, which would benefit someone anticipating a liquidation event or a higher-than-normal income year.   For the QPRT, higher interest rates decrease the amount of the gift of the residence to the QPRT and, therefore, less Exemption is used – often preserving more Exemption for additional estate tax free gifting.

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