The IRS and the New York State Department of Taxation recently announced the 2024 exemption and exclusion amounts related to Federal Estate Tax, Federal Annual Gift Tax Exclusion Amounts, and New York State Estate Tax:
Federal Estate Tax Exemption Amount 2024
$13,610,000.00 per person ($27,220,000.00 for a U.S. married couple)
Federal Annual Gift Tax Exclusion Amount 2024
$18,000.00 per U.S. client ($36,000.00 for a U.S. couple)
New York State Basic Exclusion Amount 2024
$6,940,000 per person
The 2024 exemption and exclusion amounts are at a record-setting high, providing perhaps the most favorable tax environment to date for tax planning. The continued increase to the federal estate tax exemption and gift exclusion amounts provides estate planners and clients with added planning options. Individuals looking to make lifetime gifts should consider fully utilizing their annual gift tax exclusion, and individuals who are projected to be above the federal estate tax exemption, should consider utilizing their lifetime gift tax exclusion before it is too late.
Regarding annual gifts, a U.S. individual can gift up to $18,000.00 per donee in 2024. So, if a U.S. couple has four children, they can gift up to $144,000.00 tax free. Annual gifting can be a highly effective strategy to reduce the taxable estate of a person who is projected to have an estate greater than the federal estate tax exemption.
Regarding lifetime gifts, while the federal estate tax exemption is at a record high, the 2017 Tax Cuts and Jobs Act included a sunset provision, which will revert the federal estate tax exemption back to where it was prior to its passage. The anticipated post 2025 federal estate tax exemption, adjusted for inflation, is expected to be somewhere around $7,000,000.00 come January 1, 2026. Consequently, in 2026, each U.S. individual is set to lose at least $6,000,000.00 of exemption. So, for high-net worth U.S. citizens, now is the time to consider making substantial lifetime gifts utilizing their unified credit toward the currently record high federal estate tax exemption. Failing to do so may result in substantial federal estate taxes, which could be as high as 40%. Further, large gifts made prior to 2026 will not be subject to IRS “clawback,” so this is a true “use it or lose it” scenario.
New York State has not yet released the anticipated post 2025 state estate tax exemption, adjusted for inflation, but historically, the New York State amount has equaled or been less than the federal estate tax exemption amount.
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