The IRS recently published annual inflation adjustments for 2024 that relate to gift and estate taxes.
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 up any of the taxpayer’s lifetime gift and estate tax exemption (in 2024, $13.61 million). For married couples, this means that they can give $36,000/year per recipient beginning next year.
For example, if a married couple has three children and five grandchildren, they may transfer $288,000 in 2024 to their descendants without touching their combined $27.22 million gift tax exemption, thus allowing them to transfer further substantial assets gift-tax-free. Not only are the assets removed from the taxpayers’ taxable estates, the assets’ future appreciation also avoids gift and estate taxes. In 2023, the federal gift tax annual exclusion amount was $17,000, or $34,000 for a married couple choosing to split gifts. The new exclusions go into effective on January 1, 2024.
Lifetime Estate and Gift Tax Exemption
If an individual gifts an amount that is above the annual gift tax exclusion, a portion of the individual’s lifetime gift tax exemption ($13.61 million in 2024) will be used. The gift and estate tax exemption are linked, meaning that the use of one’s gift tax exemption will reduce the amount one may leave at death estate-tax-free.
If an individual makes gifts more than the annual gift tax exclusion, a gift tax return will be due on April 15 the following year to report the gift (and track the amount of the lifetime exemption that has been used).
Notably, although the IRS has announced that the lifetime estate and gift tax exemption will increase to $13.61 million in 2024, under current law, that amount will be decreased by half at the start of 2026.
Annual Gift Tax Exclusion for Gifts to Non-US Citizen Spouse
Spouses who are both US citizens may usually transfer unlimited amounts to each other without incurring any gift tax, as any assets in excess of the couple’s combined estate tax exemption ($27.22 million in 2024) will be taxed at the death of the surviving spouse, and transferring assets to the survivor only defers the tax that the IRS will eventually collect.
Gifts to a non-US citizen spouse, however, are limited. Since a non-US citizen spouse may not be subject to the US estate tax, one cannot transfer unlimited assets to a non-US citizen spouse because that transferred wealth could potentially avoid US estate taxation upon the non-US citizen spouse’s death. When the recipient spouse is not a US citizen, and regardless of whether the non-US citizen spouse is a resident or nonresident of the United States, the amount of tax-free gifts is limited to an annual exclusion amount.
For 2024, the first $185,000 of gifts to a spouse who is a non-US citizen are not included in the total amount of taxable gifts.
Underberg & Kessler’s Estates and Trusts attorneys can help you maximize these benefits and ensure you are getting the most value out of your estate and gifting plans. For more information, contact Joshua B. Beisker at jbeisker@underbergkessler.com or 585-258-2879.