Increases to Gift and Estate Tax Exemption, Generation Skipping Transfer Tax Exemption, and Annual Gift Tax Exclusion

The annual gift tax exclusion, which is the amount an individual can gift to a recipient in a calendar year without being subject to gift tax or applied against the donor’s lifetime gift tax exemption, has increased from $17,000 to $18,000 for gifts made in 2024 (a combined $36,000 for a married couple).

Effective January 1, 2024, the federal estate and gift tax exemption amount increased from $12.92 million to $13.61 million per individual (a combined $27.22 million for a married couple), representing an increase of $690,000.

The increase in the GST tax exemption amount from $12.92 million to $13.61 million per individual allows individuals to avoid further GST tax on transfers to grandchildren and more remote descendants and unrelated individuals more than 37 ½ years younger than the donors. Unlike the federal estate and gift tax exemption, any GST exemption that is not used during an individual’s lifetime is lost, and cannot be transferred to a surviving spouse.

These increases provide gifting opportunities for individuals, especially those who have previously used most or all of their gift and estate tax exemption, to make additional gifts to remove assets and future appreciation on those assets from their taxable estates. It is important to note that these historically high exemptions are scheduled to decrease by half at the end of 2025 (i.e., $5,000,000 indexed for inflation from 2010). With less than two years until the exemption amounts may be more than halved, the window for utilizing these record high exemption amounts is quickly closing. If you want to utilize your remaining exemption you should start having conversations with us as soon as possible. Utilizing these exemptions takes thoughtful planning and time. By beginning discussions with us now, we can devise a plan to accomplish your objectives before the historically high exemption amounts expire.

Potential Gift Tax Filing Requirement

For gifts in excess of $17,000 during the 2023 calendar year to any individual, it may be necessary or advisable for you to file a Form 709, U.S. Gift (and Generation Skipping Transfer) Tax Return, with the IRS on or before April 15, 2024. In addition to traditional gifts of cash or property, you may be required to report other transactions, even if below the $17,000 threshold, such as forgiveness of loans, additions to trusts, transfers of life insurance policies to a trust, or other transactions that shift wealth to another person.

We remind you that gifts properly reported on a timely filed gift tax return cannot be adjusted by the IRS more than three (3) years after the gift tax return is filed. Likewise, the IRS may not make adjustments to those taxable gifts on a federal estate tax return filed after the donor’s death if the death occurs more than three years after the gift tax return is filed. These statute of limitations rules apply only for gifts which are adequately disclosed on a gift tax return. The IRS is not precluded from assessing additional estate or gift tax at any time with respect to gifts which are not adequately disclosed on a properly filed gift tax return.

We would be happy to discuss with you the federal gift tax or GST consequences of any gifts you made in 2023. If you would like us to prepare your gift tax return for 2023, please advise us of all of your 2023 gifts before March 31, 2024. If we do not hear from you, we will assume that you will not require our assistance in preparing a 2023 gift tax return.

Estate Planning Review

We recommend clients review their estate plans and gifting programs regularly, particularly as financial or family circumstances change. The end of 2025 and the impending tax law changes drawing closer present another critical opportunity to review your estate plan and gifting strategies.

Corporate Transparency Act

The Corporate Transparency Act (CTA) is a new anti-money laundering statute that is applicable to nearly all corporations, limited liability companies, statutory partnerships, and any other business entities that must file their organizational documents with any state. The CTA imposes an obligation to file a Beneficial Owner Information (BOI) report with the Financial Crimes Enforcement Network of the U.S. Treasury (FinCEN). Entities created after January 1, 2024, have 90 days from the date of the state filing to file the BOI report with FinCEN. Entities created prior to January 1, 2024, have until January 1, 2025 to file the BOI report with FinCEN. This new law is complicated, both in application, and compliance. It is important to understand your filing obligations and to comply with those obligations. If you have any questions regarding the CTA or are concerned that an entity you established may be subject to its filing requirements, please see Ballard Spahr’s Corporate Transparency Act Resource Center, a compilation of thought leadership to help individuals and entities navigate the new regulation.

Attorneys in Ballard Spahr’s Private Client Services Group have extensive experience assisting high-net-worth individuals and groups with their sophisticated tax, gift, and estate planning; estate, trust and foundation administration; and related planning matters. Please reach out to the group for further information about, or questions regarding, your current estate planning needs.

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This alert is a periodic publication of Ballard Spahr LLP and is intended to notify recipients of new developments in the law. It should not be construed as legal advice or legal opinion on any specific facts or circumstances. The contents are intended for general informational purposes only, and you are urged to consult your own attorney concerning your situation and specific legal questions you have.