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. 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.
GIFTING WITH PURPOSE
MAXIMIZE YOUR LEGACY, MINIMIZE TAXES
As we navigate the complexities of personal finance, one often overlooked aspect is the gift tax. This federal levy can catch many individuals off guard, but with the right knowledge and planning, you can maximize your wealth transfer while minimizing the tax burden. Understanding the Scope of the Gift Tax The gift tax applies to various asset transfers, from cash and property to stocks and even lenient loans. However, not all gifts are subject to this tax. Educational expenses, medical bills, gifts to spouses,
Maximizing Long-Term Savings While gift taxes seem like a burden, they can be valuable in estate planning. Individuals with sizable estates often utilize annual gifts to gradually reduce the overall value of their estate, ultimately lowering the estate tax owed upon their passing. This strategic approach can result in substantial long-term savings for your family. Seeking Professional Guidance The intricacies of gift taxes can be daunting, but with the right expertise, you can confidently navigate this landscape. Financial advisors and tax professionals can help you identify opportunities to minimize your gift tax liability while aligning your wealth transfer with your broader financial goals. By
and donations to charities or political organizations are exempt. It's crucial to consult with a financial advisor or tax professional to ensure your gift falls within the appropriate guidelines. Leveraging the Annual Exclusion The key to strategic gift-giving lies in the annual exclusion. As of 2024, individuals can gift up to $18,000 per person per year without incurring any gift tax. Married couples can effectively double this amount, transferring $36,000 per recipient annually. Taking advantage of this exclusion can significantly reduce your taxable estate while providing for your loved ones.
leveraging their knowledge and experience, you can ensure your gifts maximize their positive impact on your loved ones. In the ever-evolving world of personal finance, the gift tax is a crucial consideration. By understanding its nuances and employing strategic planning, you can unlock new pathways to safeguard your assets and create a lasting legacy for your family.
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