Estate Tax Planning: Maximizing Exemptions and Deductions in 2024

Key Takeaways Increased Exemptions: In 2024, individuals can pass on up to $13.61 million without federal estate taxes. Gifting Opportunities: You can gift up to $18,000 per person annually without affecting your lifetime exemption. Trusts are Powerful: Tools like SLATs and irrevocable trusts can help protect your assets from taxes. Plan Ahead: The high exemption...

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Key Takeaways

  • Increased Exemptions: In 2024, individuals can pass on up to $13.61 million without federal estate taxes.
  • Gifting Opportunities: You can gift up to $18,000 per person annually without affecting your lifetime exemption.
  • Trusts are Powerful: Tools like SLATs and irrevocable trusts can help protect your assets from taxes.
  • Plan Ahead: The high exemption amounts may decrease after 2025, so acting now can save taxes later.
  • Consult Professionals: Working with experts ensures your estate plan fits your unique needs.

1. Understanding the 2024 Estate Tax Exemptions

In 2024, the government lets you give away $13.61 million without paying federal estate taxes. This amount is higher than last year’s $12.92 million. If you’re married, you and your spouse can combine your exemptions to pass on $27.22 million. This means you can leave more money or property to your loved ones without extra taxes.

Related Topic: Understanding Tax Deductions

2. Making the Most of Annual Gifting

Every year, you can give someone up to $18,000 without it counting against your lifetime exemption. This is called the annual gift tax exclusion. By giving gifts each year, you reduce the size of your estate, which might help you avoid estate taxes later on.

Tip: Regular gifting can be a simple way to share your wealth during your lifetime.

3. The “Use It or Lose It” Situation

The high exemptions we have now might go down after 2025. This means you have a limited time to take advantage of them. If you have a large estate, considering big gifts now could save taxes in the future. For example, someone with $25 million could gift $13.61 million now, reducing potential taxes later.

Learn More: Planning for Tax Changes

4. How Spousal Lifetime Access Trusts (SLATs) Work

A SLAT is a special trust where one spouse puts assets into a trust for the other spouse to use. The main benefit is that these assets aren’t counted in your estate for tax purposes. This can help married couples protect more of their wealth from taxes.

Expert Advice: Setting up a SLAT requires careful planning to ensure both spouses’ needs are met.

5. Benefits of Irrevocable Gift Trusts

An irrevocable gift trust is a trust that can’t be changed after it’s set up. By placing assets like a family business into this trust, any growth in value happens outside your estate. This means less tax when passing it on to your heirs.

Note: Once assets are in an irrevocable trust, you can’t take them back, so decide carefully.

6. Gifting Strategies for Families

Gifting isn’t just about giving money. You can also gift stocks, real estate, or parts of your business. By spreading gifts over several years and recipients, you maximize the amount you can give without triggering taxes.

7. Evaluating Your Assets for Estate Planning

Look at what you own and think about how much it’s worth now and in the future. Assets that might grow a lot, like stocks or property, could cause estate tax issues later. Planning now helps manage these future values.

Suggestion: Keep an updated list of your assets and their values.

8. Ensuring Estate Liquidity with Life Insurance

Life insurance can provide cash to pay any estate taxes when you pass away. By using an Irrevocable Life Insurance Trust (ILIT), the insurance payout isn’t counted in your estate, which helps your heirs.

Expert Tip: An ILIT must be set up properly to get the tax benefits.

9. Preparing for the 2025 Exemption Sunset

After 2025, the high exemptions may drop to around $6-7 million per person. This means more estates could owe taxes. By acting before then, you can lock in the higher exemption amounts.

Action Step: Review your estate plan before the exemption changes.

10. The Importance of Professional Guidance

Estate planning can be complex. Laws change, and everyone’s situation is different. Working with lawyers and financial advisors helps ensure your plan works best for you and your family.

Find Help: How to Hire a Professional Bookkeeper

11. Simple Steps to Start Your Estate Plan

  • List Your Assets: Know what you own.
  • Set Goals: Decide what you want to happen with your assets.
  • Talk to Family: Make sure your loved ones know your wishes.
  • Update Regularly: Review your plan every few years.

12. Common Mistakes to Avoid

  • Waiting Too Long: Delaying planning can limit your options.
  • Not Updating Your Plan: Life changes; your plan should too.
  • Ignoring State Taxes: Some states have their own estate taxes.
  • Doing It Alone: Professional advice can prevent costly errors.

Frequently Asked Questions

What is the federal estate tax exemption for 2024?

The exemption is $13.61 million per individual in 2024.

How does the annual gift tax exclusion work?

You can give up to $18,000 per person each year without it affecting your lifetime exemption.

What happens if the exemptions decrease after 2025?

If exemptions decrease, more estates may owe federal estate taxes. Planning now can help avoid higher taxes later.

Can I change an irrevocable trust after it’s set up?

Generally, no. Irrevocable trusts can’t be changed, so it’s important to be sure before setting one up.

Why should I consider a life insurance trust?

An Irrevocable Life Insurance Trust (ILIT) keeps the insurance payout out of your taxable estate, providing funds to pay taxes without increasing the estate size.

Disclaimer: This article is for informational purposes and not legal or financial advice. Consult a professional for personalized guidance.

Take Action Today

Estate planning is a crucial step in securing your family’s financial future. With potential changes to exemption amounts on the horizon, now is the time to ensure your assets are protected.

Don’t navigate these complexities alone. XOA Tax can provide expert guidance tailored to your unique needs. Our team of experienced professionals can help you:

  • Maximize your exemptions and deductions.
  • Develop a comprehensive estate plan that minimizes tax liabilities.
  • Establish trusts and other strategies to safeguard your wealth.
  • Ensure a smooth transition of assets to your loved ones.

Contact XOA Tax today for a consultation:

We’re here to help you secure your legacy and provide peace of mind for you and your family.

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