Estate taxes can take a significant chunk out of an inheritance — and the larger the estate, the bigger the bite.
However, the recently announced 2024 estate and gift tax exemption could make it easier for some households to pass on more of their assets to the next generation.
“The 2024 tax exemption marks a historic milestone,” says Kimberly A. Hegwood, owner and managing attorney at Your Legacy Legal Care. “The 2023 estate tax exemption sits at $12.92 million per individual and will be increased in 2024 to $13.61 million per individual. This milestone represents the most substantial tax exemption in our country’s history.”
Here’s what you need to know about the 2024 tax exemption amounts— and here’s what it might mean for your estate.
What do the 2024 tax exemption amounts mean for estate planning?
“The IRS has raised the lifetime estate and gift tax exemption to $13.61 million per individual or $27.22 million for a married couple,” explains Joseph Fresard, attorney at Simasko Law in Mount Clements, Mich. “They have also raised the annual gift tax exclusion to $18,000, allowing this amount to be given without using up the lifetime exemption. These may impact your estate plan if you may leave behind near to or higher than the lifetime exclusion.”
Since these tax exemptions are likely to change again in 2025 — and are, in fact, scheduled to revert to lower levels — you may want to talk to an estate planning professional as soon as possible, especially if you are hoping to transfer a significant inheritance to your loved ones.
As you make your plans, keep in mind that these are federal tax exemptions. Your state may have its own estate and gift tax laws, and it’s a good idea to be familiar with all of the potential taxes that might be applied to your estate.
How can people use the 2024 tax exemptions to increase the value of their estate?
“People who plan to leave very large estates may be able to now leave behind more without their estate needing to pay taxes,” says Fresard. “They may also gift more during their lifetime without drawing down on the lifetime exemption.”
Hegwood agrees — and suggests making these gifts as quickly as possible. “This exemption offers individuals a unique and advantageous opportunity for significant gifting and provide an opportunity to secure wealth transfer strategies,” she explains. “While this increase takes effect in January, it is expected to be short-lived if Congress does not intervene to prevent the tax exemption reverting back to a baseline of approximately $5 million.”
If you don’t take advantage of the 2024 tax exemptions before they revert, you may miss out on a once-in-a-lifetime opportunity to pass along assets to the next generation. “Reverting back to a baseline of approximately $5 million is set to take place in 2025, which underscores the urgency for individuals and families to capitalize on the current exemption amount,” Hegwood advises. “Failure to do so may result in substantial tax consequences and severely limit the ability to transfer assets with favorable tax implications.”
Will people who already have an estate plan need to review and update their materials?
If you already have an estate plan set up, you may want to review it with an attorney or qualified financial advisor to determine whether you can take advantage of the 2024 tax exemption amounts.
“It’s always best to have your estate plan regularly reviewed by an attorney that is familiar with current legislation,” Hegwood explains, “not to mention the potential consequences that may arise if your current plan does not get updated.” She encourages households to work with a team of professionals — a CPA, a financial advisor and an elder law attorney, for example — to ensure that they are optimizing their wealth preservation strategies. “We emphasize timely and informed decision-making when it comes to solidifying your estate plan and protecting it from potential creditors and unnecessary taxes or expenses at your loved ones’ expense.”
That said, you should also be aware that the 2024 tax exemption amounts are designed to accommodate larger estates — and households with smaller estates may not see much of a benefit from the increased exemptions. “Only very wealthy households, such as individuals holding over $12 million or married couples with over $24 million should have their estate plans looked at to see if they should modify them to account for the new changes,” Fresard advises.
If you have additional questions about how the 2024 tax exemption amounts might affect your estate, the team at Trust & Will is here to help. Feel free to reach out at any time, or chat with a live member support representative — and if you’re just getting started on the estate planning process, we can help you form a simple will or trust that could provide financial security and peace of mind for your loved ones. Take our free quiz to see where you should get started, or compare our different estate planning and settlement options today!
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