Everything is going up next year—some good, some bad. In the last few weeks, I’ve written about 2024 increases to retirement plan contributions, catch-up contributions, the standard tax deduction, Medicare premiums, the Medicare Part B deductible, and the Social Security cost-of-living-adjustment. Here are two more increases just announced by the federal government.
In 2024, the annual federal gift tax exclusion amount increases from $17,000 to $18,000 per person or $36,000 for married couples who split gifts.
Also next year, the federal lifetime gift and estate tax exemption amount will increase to $13.61 million per person. That means individuals can transfer up to $13.61 million, tax-free, during their lives or at death, and married couples can transfer up to $27.22 million. It also means that, even if you’ve already gifted away your full exemption amount of $12.92 million allowed in 2023, you have an additional $690,000 you can give away in 2024 or an additional $1.38 million for married couples.
But there is a cloud on the horizon that needs to be watched. The Tax Cuts and Jobs Act (TCJA) passed in 2017 doubled the federal estate tax exemption from $5 million to $10 million and then adjusted it for inflation each year thereafter, getting us to the $13.61 million level for 2024. However, unless Congress does something, the TCJA sunsets at the end of 2025, and the estate exemption will drop to approximately $7 million per individual (which is the original $5 million adjusted for inflation).
Depending on the outcome of the 2024 election, there could be additional changes. The current administration has already proposed returning the estate and gift tax lifetime exemptions to 2009 levels which are $3.5 million estate and $1 million gift with an increased maximum tax rate of 45%. Also included in that proposal is eliminating the cost-basis step-up on inherited assets. The beneficiary would either assume the decedent’s cost basis in the asset or the unrealized appreciation could be taxable at the decedent’s death.
In the event the lifetime gift and estate tax exemption is rolled back, there are options to consider now. One potential strategy is the use of a spousal lifetime access trust (SLAT). SLATs generally allow each spouse to set up an irrevocable trust for the benefit of the other spouse. This way the couple can retain use of the assets indirectly as beneficiaries while removing the gifted assets from the transferor’s taxable estate, thus locking in the current higher exemption amounts.
There are other strategies, but remember, this can be a legally precarious area and you need the help of people who specialize in this type of estate planning. There are still two years before the current law sunsets. Don’t put it off until it’s too late to consider.
Disclaimer
This information is presented for informational purposes only and does not constitute an offer to sell, or the solicitation of an offer to buy any investment products. None of the information herein constitutes an investment recommendation, investment advice, or an investment outlook. The opinions and conclusions contained in this report are those of the individual expressing those opinions. This information is non-tailored, non-specific information presented without regard for individual investment preferences or risk parameters. Some investments are not suitable for all investors, all investments entail risk and there can be no assurance that any investment strategy will be successful. This information is based on sources believed to be reliable and Alhambra is not responsible for errors, inaccuracies, or omissions of information. For more information contact Alhambra Investment Partners at 1-888-777-0970 or email us at [email protected].
