The unified lifetime general gift and estate exclusion, the generation-skipping gift and estate tax exclusion, and the annual gift tax exclusion are typically adjusted annually for inflation. On November 9, 2023, the IRS announced an increased exclusion for all three which will become effective on January 1, 2024.
The annual gift tax exclusion will increase from $17,000 to $18,000 in 2024. This is the amount one can gift to a recipient during the year without filing a gift tax return and, therefore, without using any of their unified gift and estate tax exclusion. With gift splitting, married couples will be able to gift up to $36,000 per recipient in 2024. The annual gift tax exclusion is a powerful tool for individuals and couples to reduce their taxable estate and in 2024 they will have an additional $1,000 per year, per spouse, per recipient, to give without touching their lifetime exclusion. In other words, if a couple has four children, they could reduce their taxable estate, without using any of their lifetime exclusions, by $144,000 simply by making a gift of $36,000 to each child in 2024.
The lifetime unified gift and estate tax exemption will increase from $12,920,000 to $13,610,000 in 2024. With portability or a bypass trust, spouses can combine their individual lifetime exclusions and, therefore, now be able to pass up to $27,220,000 to their heirs tax free. For individuals or married couples that have already used their lifetime exclusion, they will have an additional $690,000 per spouse to gift or leave at death tax free.
The lifetime generation-skipping transfer tax exclusion, although not unified with the general gift and estate tax exclusion, generally mirrors the general unified gift and estate tax exclusion and such is the case in 2024. The generation-skipping transfer tax exclusion will also increase to $13,610,000 in 2024. Although portability is not available for the generation-skipping transfer tax exclusion, using a bypass trust reverse QTIP election, spouses may be able to combine their generation-skipping transfer tax exclusion as well.
Married couples who are both U.S. citizens can make unlimited lifetime gifts to each other without gift tax consequences. Gifts to a non-US citizen spouse (even permanent residents) are, however, typically subject to an annual exclusion. In 2023, the annual exclusion for gifts from a US citizen spouse to a non-US citizen spouse was $175,000. In 2024, the amount will be increased to $185,000.
It should also be noted that the current exclusion amounts are a result of the 2017 Tax Cuts and Jobs Act and are scheduled to sunset on January 1, 2026 absent congressional action. Upon sunset, the unified lifetime gift and estate tax exclusion amount will be cut in half to approximately $8,000,000. The years of 2024 and 2025 will represent a critical planning period for individuals and couples with potentially taxable estates. Many strategies can be employed to make the most of the historically high gift and estate tax exclusions.
If you would like more information related to the new gift tax laws, please contact Andrew Brower at Law Firm Carolinas.