Abracadabra Tax Tools: Federal Estate Tax Exemption and Annual Gift Tax Exclusion

New gift tax thresholds

The federal government wants to take its share of your estate when you gift money, but fear not! There are ways to help reduce the money you owe to our government. The key is to know the tools and the thresholds. NOTE: I am neither a CPA nor play one on TV. For any tax guidance, ask your #CPA or #financial advisor for additional information based on your unique circumstances.

For married U.S. citizens, you can give your spouse tax-free money tax-free. Yet, when wanting to gift others some of your assets – say, your family members or partners not recognized by your government as a spouse – the federal estate tax exemption and the annual gift tax exclusion rules go into effect.

The Federal Estate Tax Exemption allows you to gift a certain amount at death without the tax dragon breathing down your neck.

The Annual Gift Tax Exclusion allows you to sprinkle a specific amount each year during your lifetime without impacting you.

The key to know is that the numbers are changing this year! In 2023, the Annual Gift Tax Exclusion was $17,000 per client and $34,000 per couple. In 2024, the amount is being raised to $18,000 per client and $36,000 for couples.

For 2023, the federal Lifetime estate tax exemption sits at $12,920,000, increasing to $13,610,000 in 2024. A U.S. couple can currently exempt up to $25,840,000. In 2024, it’s a whopping $27,220,000.

Use It or Lose It: A Magical Dilemma

For high-net-worth U.S. citizens, this is a good way to transfer your wealth to prevent money from going to Uncle Sam.

Make gifts now to maximize benefits. Delaying might dim the lights on potential federal estate tax savings.

Let’s see how this plays out. If you pass away in 2026, your net worth is $15,000,000. Without a plan, Uncle Sam will have its hands out for $8,000,000 at a 40% rate. But if you transferred some of your wealth to your family when you were alive. By gifting $5,000,000, The tax liability is cut by more than half.

Make Your Estate Plan work for you!

Understanding these magical tools and using them wisely can transform your estate plan.

Talk to your financial advisor now to see if you should take advantage of this bump now.

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