Estate Planning for 2024
After a one year hiatus in 2010 when the Federal estate tax was repealed, the law was reinstated as of January 1, 2011 with the Federal exemption being increased to $5,000,000. While originally scheduled to revert to only $1,000,000 on January 1, 2013, as a result of the passage of The American Taxpayer Relief Act of 2012, the exemption was to remain at the $5,000,000 amount, adjusted annually for inflation. The 2018 inflation adjusted exemption was to be $5,600,000, but as a result of the passage of the Tax Cuts and Jobs Act of 2017, the exemption became $11,200,000 that year, which was increased due to inflation to $11,180,000 in 2018, and will be $13,060,000 for 2024. The top marginal estate tax bracket remains at 40 percent. The annual gift tax exclusion for 2023 was $17,000 and will be $18,000 per donee per year for 2024. It should be remembered that the current Federal law is due to “sunset” and result in an exemption of only $5 million per person as of January 1, 2026 — adjusted for inflation. It is presently anticipated the actual exemption amount may be around $7-8 million per person as adjusted for inflation.
An additional provision exists in the Federal law – the ability for a surviving spouse to elect to take advantage of the “DSUE” – the Decedent Spouse’s Unused Exemption. To elect the DSUE, the surviving spouse would have a Federal estate tax return (Form M-706) filed – whether or not the Decedent spouse’s estate exceeded the taxable threshold – and elect to use whatever portion of the exemption which remained unused by the Decedent spouse. An unused amount could be because the size of the Decedent’s estate was not in excess of the threshold or is a result of an unused amount due to allowable deductions. In any event, if any portion of the Decedent spouse’s exemption remains unused, the surviving spouse can elect to take that unused amount to be used in addition to amount of the exemption available at the time of the surviving spouse’s death. Thus, if the first spouse dies in 2024 when the exemption is $13,060,000 million, but only has a taxable estate of $7,060,000, $6 million of exemption will remain unused. If the surviving spouse dies in 2030, the surviving spouses available estate tax exemption will be $6 million plus the amount of the federal exemption available to each decedent in 2030.
While the Federal estate tax may not impact as many people as in the past, it remains important to address one’s estate planning issues regardless of changes, or potential changes, to the law. For many individuals, estate planning may not exactly be a “hot” topic. After all, planning for one’s own demise is not the most pleasant of matters to address. As a result, many people procrastinate when it comes to getting their affairs in order. Recent events may give people even more reason to put off planning. Estate planning, however, remains an important topic for everyone, no matter their financial status.
While tax minimization is high in many people’s minds, estate planning deals with more than taxes. Estate planning fundamentally involves planning for the disposition of your assets to ensure they pay to the appropriate people whom you wish to inherit – not necessarily to the people who will inherit under the state laws. While minimizing estate taxes should be part of any comprehensive estate plan, taxes are not the only concern. Making sure that your assets pass to those family members, friends, and/or charities in the manner that you wish should be the paramount concern. If your goals for disposing of your assets can be accomplished while also minimizing estate taxes, even better.
Regardless of what happens with the Federal estate tax law, one must still contend with state estate tax issues, especially in Massachusetts. Massachusetts remains only one of 13 states who have enacted and retained their own separate estate tax. See the article on The “New” Massachusetts Estate Tax. The Massachusetts estate tax exemption had been $1,000,000 per person, a small fraction of the Federal exemption, but in 2023 was increased to $2 million per person. Thus, if the total value of your estate exceeds $2 million, a Massachusetts estate tax may be due. The effective maximum tax rate in Massachusetts is only 16 percent and prior to 2023 had been actually assessed on the entire value of one’s estate, not just the excess over $1,000,000. With the 2023 increase to $2 million, the “cliff tax” effect no longer exists, and it is only the excess over the exemption amount which is subject to taxation.
While more changes to the estate tax laws may be forthcoming, postponing addressing your estate planning objectives is never a good idea. An estate plan should evolve over time, be reviewed periodically, and revised from time to time.