The Internal Revenue Service (IRS) has announced increased gift and estate tax exemptions for 2024. You may be wondering: what exactly does this mean for you and your estate plan? The ramifications of the increases are examined in further detail below.
Increased Estate Tax Exemption Amount: What You Should Know
Starting in 2024, gift and estate tax exemptions will increase to $13,610,000 – meaning you can transfer up to this amount to your beneficiaries without being subject to gift or estate taxes at the federal level. Married couples are permitted to transfer $27,200,000 (exactly double the amount above) without being subject to federal gift or estate taxes.
Increased Annual Exclusion Amount: What You Need to Know
In addition to the above, the annual exclusion amount is also increasing in 2024. Starting next year, an individual can give up to $18,000 tax-free per recipient without impacting his or her lifetime gift and estate tax exemption (as mentioned above, $13.61 million in 2024). This number is $36,000 for married couples.
It is important to keep in mind that the annual exclusion amount is $18,000 per recipient; for example, say you and your spouse want to transfer assets to your three children. When 2024 rolls around, you and your spouse will be able to transfer $108,000 without impacting your gift tax exemption.
How Does the Lifetime Gift and Estate Tax Exemption Work?
So you may be wondering: How exactly does the lifetime gift and estate tax work?
Simply put, if an individual transfers more than the number of the gift tax exclusion ($18,000 per recipient in 2024), this person will use up a portion of their lifetime gift and estate tax exemption. Since the gift tax exemption and estate tax exemption go hand in hand, going above the gift tax exclusion amount will impact the amount you can leave tax free at your death.
Gifts for Non-U.S. Citizen Spouses: What Do You Need to Know?
In general, spouses who are both citizens of the U.S. are permitted to transfer an unlimited amount of assets to each other. If these assets exceed the lifetime gift and tax exemption ($27.2 million in 2024), they will be taxed upon the death of the surviving spouse.
With that said, things can become more complicated when transferring gifts to a non-U.S. citizen spouse. Since a non-U.S. citizen spouse may not have to pay federal estate taxes in the U.S., you are limited in the amount that you are allowed to transfer. For 2024, you are permitted to transfer up to $185,000 to a non-U.S. citizen spouse without being subject to taxation on those assets.
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