Wealth Transfer and Strategic Gifting Opportunities for 2024

Cash is rolled up and sticking out of a gift box, the lid propped against it.

(Image credit: Getty Images)

The new year has brought notable changes to federal gift, estate and generation-skipping transfer (GST) tax rules. Inflation adjustments for 2024 offer fairly substantial increases to gift and estate tax exemption amounts, along with increases to annual exclusion gifts, which individuals and families should be aware of in order to maximize the potential tax benefits.

The adjustments made to exemptions by the IRS should prompt taxpayers to reassess their estate and gifting plans, focusing on enhanced tax efficiency and more impactful wealth transfer between generations. The federal estate tax and GST tax lifetime exemption amounts have increased by $690,000 for individuals in 2024 (to $13.61 million from $12.92 million in 2023) and $1.38 million for married couples (to $27.22 million in 2024 from $25.84 million in 2023).

The generation-skipping tax exemption is currently the same as the estate tax exemption, and it enables people to transfer assets directly to grandchildren or in trust for their benefit. This generation-skipping transfer (GST) strategy helps families avoid paying estate taxes twice — once when the assets pass from generation one to generation two and again when they pass from generation two to generation three.

From just $107.88 $24.99 for Kiplinger Personal Finance

Become a smarter, better informed investor. Subscribe from just ~~$107.88~~ $24.99, plus get up to 4 Special Issues

CLICK FOR FREE ISSUE

https://cdn.mos.cms.futurecdn.net/flexiimages/y99mlvgqmn1763972420.png

Sign up for Kiplinger’s Free Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Higher exemption amounts could expire

So, this year, individuals can gift or bequeath to their heirs or grant a GST of up to $13.61 million free of federal estate or generation-skipping taxes. The dollar figure is doubled for married couples.

These 2024 increases represent a perfect opportunity for families to connect with an expert to ensure their plans are optimized for the higher tax exemption limits. This is especially important because these lifetime exemption amounts, which were roughly doubled in 2017 when the Tax Cuts and Jobs Act was signed into law, are set to expire on December 31, 2025, unless congress passes new legislation. If current law expires, the federal lifetime tax exemption amounts will be cut roughly in half.

Additionally, the federal gift tax annual exclusion amount jumped almost 6% in 2024 to $18,000 per donee, up from $17,000, providing an additional avenue for more tax-efficient wealth transfer. This is also applicable to GSTs. Individuals should use this as an opportunity to implement well-thought-out gifting strategies that benefit both estate preservation and intergenerational wealth transfers.

Gifting opportunities and strategies

It’s wise for families to determine gifting strategies before we reach the end of 2025, while the lifetime exemption limits remain historically high. This opportunity for families to potentially save millions of dollars in federal taxes may disappear permanently.

There are several strategies for families to capitalize on these tax exemptions.

Annual gifting is perhaps the most straightforward method. The annual gift tax exclusion allows an individual to gift up to $18,000 per recipient in 2024. These gifts do not count against the giver’s lifetime estate or gift tax exemptions, and the recipient pays no federal taxes on this “income.” Of note, gifts in any amount paid toward tuition or medical expenses directly to the educational institution or medical provider remain exempt from the gift tax.

However, it is critical to remember that if a giver gifts an amount greater than the annual gift tax exclusion, the overage will count against their lifetime gift tax exemption ($13.61 million in 2024). If the giver provides a gift over $18,000 in 2024, they must file a gift tax return (IRS Form 709) with their federal income tax return to account for gifts and track the lifetime exemption amount used.

Given that the current high lifetime exemption amounts are scheduled to “sunset” at the end of 2025, givers should consider utilizing as much of their lifetime gift and estate tax exemptions as they can now to derive the greatest benefits whether or not the increased exemptions are extended.

Examples of trust options

Taxpayers can also take advantage of annual gift tax exemptions through trusts. Following are some examples:

Lifetime irrevocable trust. One estate planning strategy involves forming a lifetime irrevocable trust. The “grantor” transfers assets from their estate to the trust during their lifetime. When assets are transferred into an irrevocable trust, they are considered gifts, opening the door to apply annual gift tax exclusions and lifetime exemptions. When grantors utilize the annual gift tax exclusion, they can gift a certain amount of assets to each beneficiary without triggering gift taxes.

As with a direct cash gift, a grantor can transfer up to $18,000 per beneficiary this year without incurring a gift tax, and any excess can be applied to their remaining lifetime gift tax exemption.

This strategy enables individuals to avoid the potential problems inherent in providing direct cash gifts to people while still being able to take advantage of gift tax exclusions and exemptions.

Grantor retained annuity trust (GRAT). A GRAT is an irrevocable trust that allows the grantor to transfer assets to beneficiaries while reserving the right to receive a yearly annuity payment from the trust for a specified term. The annuity is based on a rate of return defined by Section 7520 of the Internal Revenue Code. At the end of the specified term, any remaining assets in the trust — particularly any returns over and above the Section 7520 rate — flow to the beneficiaries tax-free.

GRATs can be very effective for moving relatively large amounts of assets out of a person’s taxable estate, minimizing taxes, enhancing retirement planning and efficiently transferring wealth.

Spousal lifetime access trusts (SLAT). A SLAT is a type of irrevocable trust that allows a grantor to gift assets to a trust for children utilizing their lifetime gift exemption without triggering a federal gift or estate tax but allows their spouse to be a beneficiary during the spouse’s life. The grantor can transfer assets up to the exemption limit ($13.61 million in 2024) into the trust for their spouse's benefit.
As a result, the assets are removed from the grantor’s taxable estate, reducing future estate tax liability, with remaining assets passing to children.

While the federal exclusions have increased, state-level estate and gift taxes vary widely. Because of this, it’s imperative to consult with a qualified financial professional to determine your local tax laws and the best strategies for your specific circumstances.

But the bottom line is that with these enhanced exemptions potentially set to expire soon, now is the time to review estate and gifting plans to seize the right strategic opportunities.

Investment Advisory Services offered through Mazars USA Wealth Advisors LLC, a New York SEC Registered Investment Advisor. Securities offered through APW Capital, Inc., Member FINRA/SIPC, 100 Enterprise Drive, Suite 504, Rockaway, NJ 07866 (800) 637-3211 - Member FINRA/SIPC. Mazars USA Wealth Advisors LLC. is a separate entity from APW Capital, Inc.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

TOPICS

David Weinstock provides business succession, estate, insurance, tax, and investment planning services to high-net-worth individuals and business owners. His more than 28 years of experience are centered on delivering wealth advisory services to individuals and families. He specializes in complex estate planning matters, often integrating the efficient use of life insurance solutions to meet clients’ objectives. David has published in The CPA Journal and in Estate Planning Magazine and has been interviewed by the Wall Street Journal.