NEW YEAR, NEW EXEMPTION
Why 2024 Is the Year to Update Your Estate Plan
While keeping up to date with your estate planning should always be a priority, 2024 is the ideal year to review and make changes to your estate plan. This is because the federal estate, gift, and generation-skipping transfer, or GST, tax exemptions have seen a marked increase this year. In 2023, the GST was $12.92 million per individual, but it has increased by $690,000 to $13.61 million per individual in 2024. This means you can transfer property with a value up to the exemption amount, either at death or throughout your lifetime, without paying a transfer tax. If you are in a position to do so, consider taking full advantage of this estate planning environment. Estate, Gift, and GST Taxes Every year, the IRS allows individuals to gift up to $18,000 to individuals without incurring federal gift or estate taxes. If you are married, your spouse may also gift up to the same amount, effectively increasing the amount to $36,000 per year, tax-free. Some gifts do not count toward the exemption — meaning these are not taxed — such as payments made directly to medical providers or between spouses. According to the American Bar Association, the GST tax is imposed on transfers to “remote descendants,” including grandchildren, known as “skip” persons, that exceed the exemption limits.
“You need to create your estate plan this year ; the current federal estate, gift, and GST tax exemption rate is temporary and set to decrease soon.”
The GST tax is applied to direct transfers to any skip person, either during someone’s lifetime or at the time of death. However, transfers made to trusts can use the GST exemption — making the trust partially or wholly exempt from the tax. As of 2024, the federal gift, estate, and GST tax rate is a flat 40% — representing a significant expense. That is why the gift, estate, and GST tax exemptions are so important; they allow you to circumvent this tax rate in your estate plan. The GST Tax Exemption While the federal estate, gift, and GST tax exemptions were just $5 million in 2011, they have increased by over 170%. Before 2012, inflation was not considered when determining the exemption. This increase should not come as a surprise to anyone. After all, inflation has significantly strained the economy in recent years. If you wish to take advantage of the GST tax exemption through the use of a trust, you need to consider a few factors. Any non-exempt trust will still be taxed at a 40% rate. For a trust to be GST tax-exempt, it must either be a Gallo trust, meaning it is for the benefit of a single grandchild or skip person, be a grandfathered trust, or qualify for the GST tax annual exclusion. Otherwise, if you want to cement your legacy and do what is best for your family at the time of death, you need to act quickly while this exemption still applies. You need to create your estate plan this year ; the current federal estate, gift, and GST tax exemption rate is temporary and set to decrease soon.
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