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)

published 11 March 2024

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.

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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.

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.

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.

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.

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.

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.

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.