As this is written, football season is getting underway and for much of the country, summer heat is starting to give way to more pleasant temperatures. We’re wrapping up the third quarter of 2024 and about to enter the busy fall and winter holiday season.
As we look toward the winding down of 2024, it’s particularly important for some to review their year-end gifting strategies. Because the relatively high thresholds for the lifetime gift and estate tax exclusions are set to terminate at the end of 2025—absent new legislation—and with the current presidential candidates indicating significantly different approaches to that coming deadline, this year might require some special consideration for those with significant estates and related intentions for gifting.
We’ve written previously about the December 31, 2025 “sunset” provision of the 2017 Tax Cuts and Jobs Act (TCJA) and its implications for gifting strategies including the annual gift exemption, charitable giving, and trusts. The 2017 legislation increased the size of the lifetime estate and gift tax exemption from $5.6 million (for an individual) to $13.61 million (in 2024). But the law also stipulates that this much higher limit will expire at the end of 2025 unless it is renewed by Congress and signed the president. With the election a toss-up at this point, according to many analysts, it is uncertain that the higher exemptions will be extended. If they are not, the threshold will drop down to its pre-TCJA levels, indexed for inflation: probably around $7 million for individuals and $14 million for couples.
For those with estates in the $6 million range or more (doubled for married couples), year-end gifting can be a valuable tool for transferring assets out of the estate, either to heirs, a properly designed trust, or even a valued philanthropic or charitable effort.
In 2024, an individual can give up to $18,000 to any individual without incurring gift taxes. Married couples can give away $36,000 this year to any person. In other words, a couple with significant assets who have, say, five grandchildren could gift as much as $180,000 in 2024—perhaps in the form of a 529 education plan or even to a Roth IRA (assuming that each grandchild had at least $18,000 of earned income in 2024). They can also make similar gifts to children or other relatives. By carefully managing an annual gifting strategy, it is possible to transfer significant assets from the estate to the next generation, even without the use of trusts or other estate planning tools.
However, those with more extensive estates can benefit from the use of properly constructed trusts, such as irrevocable trusts or grantor-retained annuity trusts (“GRATs”). In an irrevocable trust, assets placed in the trust are removed from the donor’s estate and may be used by the beneficiary of the trust during the donor’s lifetime, subject to the terms of the trust (which can be determined by the donor). With GRATs, the donor places assets in the trust that can continue to generate income during the donor’s lifetime and benefit heirs upon the donor’s passing. Those with estates near the projected lower thresholds in force after 2025 should talk to their financial advisors and estate planning specialists about the advisability of making larger transfers to such trusts to avoid potential estate tax liability.
Of course, charitable gifting never incurs gift tax liability. Those who support charitable causes, either through direct donations or by establishing philanthropic foundations, may want to consider a larger-than-normal donation or transfer of assets as 2024 comes to a close. In 2024, gifts to charity are limited to 60% of the taxpayer’s adjusted gross income (AGI) for cash and non-cash donations.
Some with philanthropic aims find the services of a donor-advised fund (DAF) convenient and helpful. A DAF is able to accept gifts of most kinds, including real property and listed investments. The donor is then able to direct gifts from the DAF to a chosen, qualified charity. Persons who “bunch” two or more years’ worth of charitable gifts in a single tax year may find this especially useful, as the assets placed in the DAF are removed from the donor’s estate and also generate an immediate charitable gift deduction. The DAF can then hold the funds until the donor decides how they should be allocated to charity.
Mathis Wealth Management understands that many clients with extensive estates want to exert greater control over who benefits from their generosity. By taking stock of the estate and the client’s goals, and by providing professional, fiduciary guidance and connection with qualified tax and estate planning professionals, we can help you make smart decisions about your year-end gifting that reflect your most important priorities.
To learn more, please visit our website and read our article, “Gifting Strategies You Can Use Now.”
