The Internal Revenue Service announced the inflation adjustments for gift and estate exemptions for 2024. The annual gift tax exclusion will be $18,000 per recipient for 2024.
The combined gift and estate tax exemption will be $13.61 million per individual for lifetime gifts made in 2024 and for bequests made by someone passing away in 2024. This is an increase of $690,000 from the 2023 exemption amount of $12.92 million. This increase means that a married couple may transfer a total of $27.22 million without having to pay any federal gift or estate tax. For a couple who has already maxed out lifetime gifts, the increase means they may now give away another $1.38 million in 2024.
Annual Gift Tax Exclusion
Each year, the IRS sets the annual gift tax exclusion, which allows a taxpayer to give a certain amount (in 2024, $18,000) per recipient tax-free without using any of the taxpayer’s lifetime gift and estate tax exemption. For married couples, this means that they may give a combined $36,000 per year per recipient beginning January 1.
As an example, if a married couple has two children and three grandchildren, they may transfer $180,000 in 2024 to their descendants without touching their combined $27.22 million gift tax exemption.
Lifetime Estate and Gift Tax Exemption
A taxpayer who wants to gift more than the annual gift tax exclusion to one or more donees will use a portion of his or her lifetime gift tax exemption (in 2024, $13.61 million) to avoid paying gift tax. The gift and estate tax exemption is “unified”, or combined, meaning that the use of one’s gift tax exemption will reduce the amount he or she may leave at death estate-tax-free.
A taxpayer who makes gifts in excess of the annual gift tax exclusion must file a gift tax return, due April 15 in the year following the gift, to report the gift and track the amount of the lifetime exemption that has been used.
It should be noted that although the IRS has announced that the lifetime estate and gift tax exemption will increase to $13.61 million in 2024, that amount is set to be cut in half at the start of 2026, unless further legislation is enacted.
Planning Opportunities
Clients may take advantage of the increased exemption amounts by making lifetime gifts, either outright to an individual or for the benefit of an individual through a trust.
For those who have fully used their combined gift and estate tax exemption in prior years, the increase from 2023 to 2024 provides an opportunity to make additional lifetime gifts to avoid or reduce estate tax.
Should you have questions about optimizing your estate planning strategy or need assistance in maximizing the benefits of the increased exemption amounts, our attorneys are here to help. Explore our Estate Planning Services page to learn more about our comprehensive offerings and how we can assist you. For personalized guidance, feel free to contact a member of our team directly.
