Take Advantage of Increased Gift and Estate Tax Exclusions in 2024

The federal gift, estate, and generation-skipping transfer (GST) tax exemptions and the annual exclusion from gift tax are historically high, due to a temporary increase under the Tax Cuts and Jobs Act. However, absent the passage of further legislation, the regulations that elevated the exemptions are set to expire at the end of 2025 and the exemption amount will be cut back to half the current value (adjusted for inflation) effective January 1, 2026. To the extent the increased exemption is not used by the end of 2025, it will be lost.

Individuals who may be affected by the gift and estate tax should consider using the increased exemption amount before it is too late. There are numerous estate planning techniques available to utilize this exemption to efficiently transfer wealth during an individual’s lifetime.

With 2023 winding down, it is also time to look to the increase in gift and estate tax exemptions the new year brings. These increases, announced by the IRS on November 9, 2023, include a rise in the federal gift, estate, and GST tax exemptions and the annual exclusion from gift tax, all of which will take effect on January 1, 2024.

Gift and Estate Tax Exemption

The gift and estate tax exemption will increase to $13,610,000 per individual for 2024. Married couples will be able to transfer up to $27,220,000 as both spouses can take advantage of the exemption. This is an increase of $690,000 per individual ($1,380,000 per married couple) from 2023. Generally, gift and estate taxes may be due if an individual’s total wealth transfer, during their lifetime and at death, exceeds the gift and estate tax exemption.

Generation-Skipping Transfer Tax Exemption

The GST tax exemption will similarly increase to $13,610,000 per individual ($27,220,000 per married couple) for 2024. This is also an increase of $690,000 per individual ($1,380,000 per married couple) from 2023. The GST tax may be triggered by transfers to, or in trust for, family members who are more than one generation younger than the donor, or unrelated individuals who are more than 37.5 years younger than the donor.

Annual Gift Tax Exclusion

The annual gift tax exclusion will increase to $18,000 per donor, per gift recipient (or $36,000 per married couple splitting gifts) for 2024. This is an increase of $1,000 per individual ($2,000 per married couple splitting gifts) from 2023. The annual gift tax exclusion permits individuals to make gifts to any number of donees tax free, every year, without using a portion of their gift and estate tax exemption.

Planning Opportunities

This December, individuals should consider using the 2023 annual gift tax exclusion ($17,000 for individuals or $34,000 for married couples filing jointly) to make gifts to children and grandchildren. Although the annual gift tax exclusion may seem modest when compared to the gift and estate tax exemption, it can be a useful tool to aid in reducing an individual’s taxable estate in the long term.

Looking to 2024, individuals have a time-sensitive opportunity to transfer significant assets and secure the tax benefits of the temporarily high exemption. Even if an individual has already fully utilized their current exemption, such individual will be able to make additional gifts ($690,000 per individual or $1,380,000 per married couple) in 2024 due to the increase in the exemption.

Individuals should consider funding trusts with assets that are believed to have a high growth potential, using a portion of their gift tax exemption now, and removing future appreciation from their estates. Additional opportunities for tax efficiency may arise when planning with business interests, as careful planning may achieve a discount on the value of the interests transferred, allowing the gift exemption to be stretched to cover more value.

Please contact David S. Kovsky, Erin E. McQuiggan or any member of the Private Client Services team at Duane Morris to discuss these planning opportunities further.

Privileged Client Information and Border Searches

Imagine you are returning to the United States after traveling abroad. You have been randomly selected for a search at the border by U.S. Customs and Border Protection (CBP). They request that you provide the passwords for both your work phone and work laptop. What do you do? As an attorney, you are likely to have privileged information on such devices. Regardless of whether you are a U.S. citizen or not, CBP can make your life difficult if you refuse. If you are a citizen or legal permanent resident, they will have to let you back into the country, but they can take temporary custody of your device for further examination. If you are not a citizen, CBP has the right to refuse you entry into the United States.

To read the full text of this article by Duane Morris attorneys Amrita Narine and Reshma Shah, please visit the Duane Morris website.

Congress Passes Tax Bill, Bringing Only Temporary Estate Tax Relief

On December 20, 2017, both the House and Senate passed the Tax Cuts and Jobs Act. The bill, which was previously passed by both chambers in different versions, was consolidated into a single bill by a conference committee to work out the differences between the chambers’ respective bills. President Trump signed the bill on December 22, 2017.

The long-awaited tax bill was heavily negotiated by Republican lawmakers over the past few weeks and contains significant changes to the individual income, corporate, business and estate tax regimes. The original bill that passed the House doubled the estate tax exemption from $5.6 million for individuals in 2018 ($11.2 million for married couples) to $11.2 million for individuals ($22.4 million for married couples), with a full repeal scheduled to take effect in 2025. The original Senate bill called for a doubling of the estate tax exemption without any full repeal. The final bill that passed both chambers doubles the exemption for years 2018 to 2025, followed by a drop back to current exemption levels in 2026. There will be no repeal of the estate tax and the exemption will continue to be indexed for inflation. The final change to revert back to current levels in 2026 was made to satisfy Senate parliamentary restrictions to ensure that the overall tax bill fell within budgetary limitations, in order to pass the bill by a simple majority.

To read the full text of this Alert, please visit the Duane Morris website.

The Death Of The New Jersey Estate Tax

On Oct. 7, 2016, the New Jersey legislature approved a bill that would eliminate the New Jersey estate tax by 2018. The bill is the result of a compromise between Gov. Chris Christie and the state legislature to increase the state’s gas tax by 23 cents per gallon and slightly reduce the state sales tax. The bill is expected to be signed by Governor Christie in mid-October. [UPDATE: The governor signed the bill into law on October 14, 2016].

New Jersey currently has one of the most penalizing estate tax regimes in the country, with an exemption of only $675,000 and a top marginal rate of 16 percent. The new legislation would increase the exemption to $2 million on Jan. 1, 2017, and eliminate the tax entirely on Jan. 1, 2018.

To read the full text of the article, written by Duane Morris associates Elizabeth Corder and Joshua Steinberg, please visit the Duane Morris website.

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The opinions expressed on this blog are those of the author and are not to be construed as legal advice.

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