Strategic Gifting in 2024: Maximizing Wealth Transfer for Future Generations

Passing on your wealth to the next generation is a thoughtful act that requires strategic planning, and one of the most valuable tools at your disposal is the use of gift and generation-skipping transfer tax (GST) exemption amounts. This 2024, Floridians have an enhanced opportunity to leverage these tax exemption amounts for more extensive gifting strategies.

Gift and Estate Tax Exemptions in 2024

The gift and estate tax exemptions for 2024 offer increased limits, allowing individuals to transfer a significant amount of wealth without incurring federal taxes. The gift and estate tax exemptions are set to rise from $12,920,000 to $13,610,000 in 2024. This means that in 2024, you can transfer $13,610,000 to your beneficiaries, either during your lifetime and/or at death, all free from gift or estate tax. However, this is not permanent. The present limit (which will continue to be adjusted for inflation) will revert to its previous level after December 31, 2025. Starting from January 1, 2026, this limit will reduce to $5 million, subject to inflation adjustments. Initially, it was anticipated that by 2026, this exclusion would reach about $6.4 million. However, ongoing high inflation could make this forecast outdated. Should the current high rates of inflation persist over the next couple years, the exclusion limit in 2026 might rise slightly higher.

For married couples, the combined transfer amount increases to $27,220,000. If you’ve already utilized your lifetime gifting limits, additional tax-free gifts in 2024 can reach $690,000 per individual or $1,380,000 per married couple. Understanding these exemptions is crucial for effective estate planning.

Annual Gift and Estate Tax Exemption for 2024

Floridians can take advantage of a higher annual gift and estate tax exemption in 2024. The annual gift tax exclusion permits individuals to give tax-free gifts up to a specific dollar amount each year to an unlimited number of recipients. In 2024, the annual gift tax exclusion amount is set at $18,000 (from $17,000 in 2023) per recipient and $36,000 for married couples.

Gifts for tuition or medical expenses (including health insurance) remain exempt from gift tax when paid directly to the educational institution, medical provider, or insurance company.

There’s a special rule for spouses. You can give any amount to your spouse, with an exception for non-US citizen spouses who are limited to $185,000 in annual gifts in 2024. This can be done during your lifetime or after you pass away, and it won’t use your gift and estate tax exemption amount. Yet, it’s important to note that the assets you gift to your spouse will become part of their estate when they pass away.

Generation-Skipping Transfer (GST) Tax Exemption for 2024

The generation-skipping transfer tax (GSTT) is an extra tax on property transfers that jump a generation, preventing families from bypassing estate taxes for multiple generations by directly gifting or bequeathing to grandchildren or great-grandchildren.

The IRS views the GSTT as a way to ensure that an opportunity for taxation is not missed by skipping a generation.  

In 2023, GST tax exemption was $12,920,000 per taxpayer, and in 2024, it increases to $13,610,000, or up to $27,220,000 for married couples. However, the current exemption amount, established by the Tax Cuts and Jobs Act of 2017, is set to reduce by approximately 50% at the end of 2025 unless legislative action is taken. Strategic planning is essential to maximize the current exclusion amounts before potential reductions.

Who Pays the GST Tax?

The generation-skipping transfer tax is covered by either the giver or the receiver. The giver handles the direct generation-skipping tax, either by paying it outright or through their estate. 

If the transfer undergoes intermediate steps before reaching the final recipient, such as the skipped receiver getting the property first, the skipped receiver deals with the indirect generation-skipping tax. This second situation, however, is not as common as the first.

Gifting Strategies to Benefit Your Heirs and Your Future Care

Several gifting strategies can optimize the benefits of these tax exemptions, ensuring a smooth transfer of wealth to heirs while securing your future care. 

1. Staying within the yearly exclusion limit: You can make multiple tax-free gifts, each under the yearly limit of $18,000.
2. Using your lifetime exemption: Beyond the annual limit, there’s a lifetime exemption of $13.6 million for 2024. Gifts exceeding the yearly limit of $18,000 count toward this exemption, and if you face gift tax on the excess, you can pay it or apply part of your lifetime exemption to the gift.
3. Gifting before the Medicaid lookback period: An irrevocable asset protection trust can safeguard assets for heirs while avoiding nursing home care costs. Creating the trust early can expedite nursing home eligibility, bypassing the five-year Medicaid lookback period.
4. Exploring various trusts: Different trusts offer unique benefits based on your situation. For instance, a Qualified Income Trust aids Medicaid applicants exceeding income limits, and a Pooled Trust supports Medicaid applicants with special needs.
5. Forming a family LLC: For non-cash gifts like heirlooms, gift tax exclusions apply. Creating a multi-member LLC for family assets allows you to retain control while reducing the assets’ market value, potentially increasing your yearly exemption value compared to direct gifts.

Some strategies may work for your specific circumstances better than others, and it’s best to consult an estate planning attorney to ensure you make the right informed choice.

At the Law Offices of John Mangan, P.A., we specialize in helping clients navigate complex estate planning issues. Contact us to schedule an appointment or fill out our Contact Form. Located in Palm City, Florida, we serve clients in surrounding communities like Stuart, Hobe Sound, Port St. Lucie, and Jupiter. Secure your legacy with strategic gifting today.