By: Kyle Hafstad, CFP®
As the holiday season approaches, many of us are thinking about the gifts we want to give to our loved ones. But for those of us who are also thinking about estate planning, the end of the year can be an especially important time to make strategic gifts. This year, there's good news for those of us who fall into that category: the IRS has officially announced that both annual exclusion gifting and lifetime exemption gift limits are increasing in 2024. Here, we'll break down what that means for you and your estate plan, as well as offer a quick reminder about best practices for end-of-year gifting.
Annual exclusion gifting – gifts that do not count against lifetime gift tax exemptions – will increase from $17,000 per individual to $18,000 per individual. That means individuals can give up to $18,000 per year to any other individual without any tax consequences. For couples who want to take advantage of this increase, the limit doubles to $36,000 per recipient. Additionally, the lifetime exemption will increase from $12,920,000 per individual to $13,610,000 per individual. This means an individual can gift up to $13,610,000 over the course of their lifetime without paying any federal gift tax.
If you had previously super-funded contributions into a 529 Plan, utilizing the ability to front-load and average out the contributions using annual exclusion gifting over five years, you are able to gift the difference between the previous annual exclusion amount and the increased amount. For example, if you super-funded five years of annual exclusion gifts into a 529 plan in 2023 in the amount of $85,000, when the exclusion was $17,000, you will be able to make a further $1,000 gift in 2024 - the amount of the difference in exclusions between 2023 and 2024.
It's also worth noting that the end of the year is often a popular time for gift-giving. A lot of people who take advantage of their annual gift exclusion allowances write checks to their family members as holiday gifts. It's important to remember, however, that gifts are counted as "Made" on the date the check is cashed or the funds are transferred - NOT the date on which the check is written or transfer initiated. This means if a check is written on Dec. 24th, but not deposited by the recipient until Jan. 1st (or later), the gift is deemed a use of 2024 exclusion, NOT 2023 exclusion. Once it has turned over into the new year, annual exclusion gifts cannot be made retroactively to take advantage of a past year.
While these nuances can seem complicated, it's worth remembering that estate planning is just that – planning. By being mindful of when to give gifts and to whom, and by taking advantage of certain allowances when possible, you could be setting up your family for a strong financial future.
Overall, the changes to gift allowances in 2024 – while not huge – represent a positive shift for those who are invested in their estate planning and looking to give to loved ones. Keep in mind that gifting is just one aspect of estate planning, and a qualified estate planning advisory team can help you navigate the complexities that come with it. And, if you do decide to make gifts at the end of the year, don't forget to make sure the timing is correct so you can take full advantage of the gift exclusion allowances available to you.
Exencial Wealth Advisors is an SEC registered investment adviser. Any references to the terms “registered investment adviser” or “registered,” do not imply that Exencial or any person associated with Exencial has achieved a certain level of skill or training.
The information provided in this article is for educational purposes only and should not be considered as financial or legal advice. Please consult with your financial advisor for personalized advice.