Points to Know About Estate Tax Law and the 2024 Election

As we approach the 2024 election, many Americans are closely watching potential changes in various areas of law, including estate tax regulations. As you may or may not be aware, estate planning is a critical aspect of financial management, and understanding how potential shifts in estate tax law could impact your strategy is essential. Let us share a few key points to consider regarding estate tax law and the upcoming election.

First of all, the outcome of the 2024 election could bring significant changes to estate tax laws. Depending on which party takes control of Congress and the White House, there could be shifts aimed at increasing or decreasing tax burdens on estates. It is important to stay informed about these potential changes as they could affect your estate planning decisions and the financial legacy you leave behind.

Understanding the current landscape and anticipating possible changes can help you make more informed decisions about your estate plan. This overview will cover the current estate tax law, potential changes that could arise from the election, and strategies to protect your assets and ensure your estate plan remains effective.

We want to begin with a brief, current Estate Tax Law overview. The federal estate tax, often referred to as the “Death Tax,” is a tax on the transfer of the estate of a deceased person. As of 2024, the federal estate tax exemption is set at $13.61 million per individual, meaning that estates valued below this threshold are not subject to federal estate taxes. For married couples, the exemption is effectively doubled, allowing them to shield up to $27.22 million from estate taxes.

The federal estate tax rate for estates exceeding the exemption is based on a graduated scale that quickly maxes out at 40% for estates with at least $1 million beyond the exemption limit. Although there is no estate tax in our state of Florida, it is also important to note that some states impose their own estate or inheritance taxes, which can vary significantly in terms of exemption amounts and rates.

There is no question that the outcome of the 2024 election could bring significant changes to estate tax laws. Let us share some potential scenarios to be aware of:

• Reduction of the Estate Tax Exemption. There has been discussion among lawmakers about reducing the federal estate tax exemption. Some proposals suggest lowering it to pre-2017 levels, around $5 million per individual, or less. Such a change would significantly increase the number of estates subject to federal estate taxes.  If Congress and the President fail to take any action, this will be the result when our current estate tax exemptions sunset at the end of 2025 and are reduced to $5 million per person with inflation adjustment.  Many projections show the inflation-adjusted figure to be closer to $7 million per person, but that number will not be known with certainty until the later part of 2025.  
• Increase in Estate Tax Rates. Another potential change is an increase in the estate tax rate. Proposals have been floated to raise the rate above the current 40%, which would affect estates with values exceeding the exemption threshold.
• Changes to Step-Up in Basis. Currently, inherited assets receive a step-up in basis, meaning the asset’s value is reset to its market value at the time of the owner’s death, minimizing capital gains taxes for heirs. Changes to this rule could result in higher taxes on inherited assets.
• State-Level Changes. In addition to federal changes, some states may also adjust their estate or inheritance tax laws. Keeping an eye on both federal and state legislative developments is crucial for comprehensive estate planning.

Given the potential changes, it is important to consider how they might impact your estate planning strategy with your experienced Florida estate planning attorney. Regularly reviewing and updating your estate plan ensures it aligns with current laws and your financial goals as significant changes to estate tax laws may require adjustments to your plan. You may want to consider utilizing the current high exemption amounts through lifetime gifting which can help reduce the size of your taxable estate, making strategies like gifting to family members or setting up trusts effective. 

Additionally, if you live in a state with its own estate or inheritance tax, your estate plan should address these tax burdens. Strategies might include trusts, such as irrevocable trusts and grantor retained annuity trusts (GRATs), which can be valuable tools for managing estate taxes efficiently or even relocating to a state with more favorable tax laws or structuring your estate to minimize state taxes. Consulting with an experienced Florida estate planning attorney is crucial as they can provide guidance on how potential changes in the law may affect your estate. They can also help you develop a strategy to mitigate tax liabilities effectively.

The 2024 election may bring changes that significantly impact estate tax laws and, consequently, your estate planning strategy. The key here is to stay informed. Also, being proactive is key to ensuring your estate plan remains effective and aligned with your goals. By understanding the current landscape and potential shifts, you can make informed decisions that protect your assets and your legacy.

We know this article may raise more questions than it answers.  If you have questions or need assistance with your estate planning, contact an experienced estate planning attorney who can help you navigate these complex issues and prepare for any changes that may come with the 2024 election. In estate planning, foresight and expert guidance are key to securing your legacy and providing for your loved ones. Our estate planning law firm takes a very different approach from what you might have come to expect. Our goal is to create lifelong relationships with each of our clients, to guide and manage your legacy for the rest of your life. Please contact our offices in Stuart and in Palm City to learn more.