Bloomberg recently released its predictions for the tax rates in 2024. These prognostications are based on the Chained Consumer Price Index for all Urban Consumers (C-CPI-U) data reported from September 2022 to August 2023 by the Bureau of Labor Statistics. The IRS relies on this data for annual adjustments to account for inflation. Here are the anticipated changes:
Unified Credit Against Estate Tax and Generation Skipping Transfer Tax Exemption Amount (§2010, §2631):
- For estates of decedents who pass away in 2024, the basic exclusion amount for determining the unified credit against estate tax under §2010 will be $13,610,000. This represents an increase of $740,000; and
- The GST exemption amount for generation-skipping transfers under §2631(c) will also be $13,610,000 in 2024, reflecting an increase of $740,000. (If a taxpayer uses the entire exemption and the exemption amount increases in a future year, the taxpayer may claim the additional amount in that year.)
Valuation of Qualified Real Property in Decedent's Gross Estate (§2032A):
- If the executor elects to use the special use valuation method under §2032A for qualified real property, the aggregate decrease in the value of the property resulting from this election cannot exceed $1,390,000 for estates of decedents who pass away in 2024.
Annual Exclusion for Gifts (§2503, §2523):
- The value of gifts made to any person (excluding gifts of future interests in property) that are not included in the total amount of taxable gifts under §2503 for the calendar year 2024 is $18,000. This represents an increase of $1,000; and
- The value of gifts made to a non-citizen spouse (excluding gifts of future interests in property) that are not included in the total amount of taxable gifts under §2503 and §2523(i)(2) for the calendar year 2024 is $185,000.
Planning Opportunities: "Use it, or Lose it"
There are several estate and gift tax techniques that can be used during rising inflation. Here are some of the best techniques:
- Take advantage of the increased lifetime gift tax exemption and generation-skipping transfer (GST) tax exemption. The IRS has increased the estate, lifetime gift, and GST tax exemption in response to inflation rates in 2022, offering an opportunity to preserve wealth for generations;
- Use the annual gift tax exclusion to transfer wealth tax-free. The annual gift tax exclusion allows individuals to give up to a certain amount of money to another person each year without incurring gift tax;
- Consider making gifts of appreciating assets. Appreciating assets such as stocks or real estate can be gifted to heirs, allowing them to benefit from future appreciation while avoiding estate and gift taxes;
- Use a grantor retained annuity trust (GRAT). A GRAT allows individuals to transfer assets to a trust and receive an annuity payment for a set number of years. At the end of the term, any remaining assets in the trust pass to the beneficiaries tax-free;
- Consider a charitable lead annuity trust (CLAT). A CLAT allows individuals to transfer assets to a trust that pays an annuity to a charity for a set number of years. At the end of the term, any remaining assets in the trust pass to the beneficiaries tax-free; and/or
- Use a family limited partnership (FLP). An FLP allows individuals to transfer assets to a partnership and then gift or sell partnership interests to family members. This can help reduce the value of the estate and gift tax liability.
These are some of the most effective methods for preserving and transferring wealth in a tax-efficient manner. However, the rules surrounding these techniques can be complex and change over time. Start taking steps now to protect your clients assets and ensure their lasting legacy.
Matthew Erskine is managing partner at Erskine & Erskine.