Legal Analysis: Highlights from January 2024

2024 Federal Lifetime Estate and Gift Tax Changes: What You Need to Know

By Attorney Bryce Kaufman

As we step into the new year, there are some important changes that could have a significant impact on your estate planning. Both the federal gift exclusion and the federal lifetime Estate Tax exemption have significantly increased, creating additional opportunities for individuals and couples navigating estate and tax planning.

Annual Gift Tax Exclusion on the Rise

One notable change is the increase in the federal gift tax annual exclusion. In 2023, the exclusion stood at $17,000 per individual or $34,000 for a married couple. In 2024, these numbers are seeing a boost to $18,000 per individual and $36,000 for married couples. This adjustment provides individuals more flexibility in gifting without triggering federal gift taxes. Gifts over the federal annual exclusion require the filing of a gift tax return, which will simply lower the federal estate tax exemption described below. As long as there is any remaining estate and gift tax exemption, they do not result in gift tax being paid by the donor.

Here in the Pacific Northwest, there is no gifting limit at the state level. That means that a gift above the federal gift tax annual exclusion has no negative ramifications on state-level estate tax, nor does anything have to be filed with the state. Lifetime gifts completely avoid state estate tax at death in Oregon and Washington. Oregon will tax an estate over $1,000,000, regardless of single or married, at a progressive rate of 10%-16%, while Washington will tax an estate over $2,193,000, regardless of single or married, at a progressive rate of 10%-20%. With such low state level estate tax, setting up a trust and lifetime gifts are extremely beneficial.

Changes in the Federal Lifetime Estate and Gift Tax Exemption

For those considering the long-term implications of estate planning, the federal lifetime estate and gift tax exemption amounts are crucial. In 2023, the exemption was $12,920,000 for an individual or $25,840,000 for a married couple. However, due to inflation, in 2024 these figures increased to $13,610,000 for individuals and $27,220,000 for married couples. Any amount over this exemption is taxed at 40%.

It’s important to note that these current exemption amounts were established in 2017 under the Tax Cuts and Jobs Act and are currently slated to sunset at the end of 2025. Without legislative intervention, the exemption amounts could see a significant reduction to $5,000,000 per taxpayer or $10,000,000 for a married couple, indexed for inflation. If Congress does not enact any changes before January 1, 2026, the federal estate and gift tax exemption amount will likely be approximately $6,800,00 per person, or $13,600,000 for a married couple.

For those who might be wondering about the urgency of these changes, it’s essential to understand that time is of the essence. The Internal Revenue Service (IRS) has made it clear that large gifts made before the end of 2025 will be “locked in” or “grandfathered” to utilize the higher estate and gift tax exemption, protecting individuals and couples from potential reductions in the future. For example, a married couple gifts a total of $20,000,000 over the annual exclusion in 2024. Since this amount is below the exemption of $27,220,000, there is no tax implications. Now let’s pretend the married couple passes away in 2026 and the tax exemption has decreased to $13,600,000. Even though they gifted $20,000,000 in 2024 ($6,400,000 over exemption), they were grandfathered in to the rules at 2024, saving the estate $2,560,000.

What about Income Tax?

It is important to factor in income tax planning and what is called a “step-up in basis.” A step-up in basis refers to the adjustment of the value of an asset for tax purposes when it is transferred from one person to another, typically upon death (inheritance) or as a gift. This adjustment is often extremely beneficial for the recipient as it can potentially eliminate any income tax.

Inheritance: When someone passes away and leaves assets to their heirs, the heirs generally receive a “step-up” in the basis of the inherited assets to their fair market value at the time of the decedent’s death. This means that the new basis for the heirs is not the original cost of the asset but its value at the time of the decedent’s death. This is advantageous because it can reduce the income tax liability if the heirs decide to sell the inherited assets in the future. This applies to any appreciated nonqualified asset such as property or stock that has been appreciated. If children inherit the family home and sell it shortly after the parent’s death, the only income gains they would pay, if any, is that on the appreciation from date of death to the date of sale.

Gifting: When someone gifts an asset during their lifetime, the recipient generally takes over the donor’s basis in that asset. This is known as a “carryover basis.” However, certain gifts, such as those subject to the gift tax, may trigger a step-up in basis. For instance, if the donor paid gift tax on the gift, the recipient may receive a step-up in basis. However, they do not receive a second step-up after the donor’s death.

Looking Ahead: The Importance of Planning

The looming sunset of the current federal exemption at the end of 2025 underscores the need for planning. Without proper planning, individuals and families could face considerable estate tax liability.

As we move further into 2024, staying informed about these changes and consulting with financial and legal professionals becomes crucial for effective estate and tax planning. The evolving landscape of federal tax policies emphasizes the need for individuals to be proactive in navigating their financial affairs and ensuring that their legacy is protected for future generations.

Finding Help

Myatt & Bell’s Estate Planning attorneys are here to help. Please give us a call today to get connected with our team.

Estate Planning & Peace of Mind

Have you found yourself making excuses for why not to get your estate in order? Maybe you’re convinced that you really don’t need estate planning. If you have assets and loved ones, you need an estate plan. Having an estate plan that is right for you ensures your loved ones are taken care of and that the transition is as easy as possible.

Attend one of our complimentary estate planning webinars and see for yourself. Having your estate plan prepared and understanding the why’s behind the importance of estate planning can bring you the peace of mind you have been needing. Join us at our next Estate Planning Informational Webinar by clicking here.

From Our Clients

“All of the staff were amazing and thorough. Information was presented in a manner that was understandable and clear.” – Stephen K.

“We selected Myatt & Bell to update our estate plan and associated documents. Consultations with Attorney Lindsey George were focused and professional. Asset worksheets were clearly explained and easy to work with. All documentation was exchanged electronically using the online Clio secure document system. Myatt & Bell provided a complete service resulting in an impressive package of legal documents correctly reflecting our desired outcomes. We will continue to return to them as updates are needed.” – Charles I.

Families choose Myatt & Bell to design their estate plans with honest optimism and meticulous attention to detail.

Do you have feedback for us?

Please continue giving us feedback about your experience with M&B. We want to make sure our clients are happy.

And, if you run into someone who needs help with a will or trust, please tell them about Myatt & Bell. Thank you!

Share this post:

Related Posts

Mb October 2022 Newsletter | Incapacity Planning Attorney | Myatt & Bell
Your Legal Source: Newsletter Insight by Myatt & Bell, P.C.

Legal Analysis: Highlights from October 2023

Oregon Estate Tax Update: $15 Million Estate Tax Exemption for Natural Resource Property By Attorney Bryce Kaufman This month’s newsletter highlights an important change in

Read More
Your Legal Source: Newsletter Insight by Myatt & Bell, P.C.

Legal Analysis: Highlights from September 2023

In This Edition: Naming the Right Fiduciary in Estate Plans Get to Know Director John Courtney Complimentary Estate Planning Webinar A Note from the President:

Read More