Listen to this post

The year 2024 brings new changes to estate and gift tax laws in the United States, with updated exemptions, rates and regulations affecting taxpayers at both federal and state levels. As we settle into the new year, it is important to stay informed about the latest updates and requirements to ensure proper planning and compliance. In this article, we take a closer look at noteworthy estate and gift tax changes to the law for 2024, including federal exemptions, tax rates, annual exclusions, state-specific updates, and more. Whether you are a high-net-worth individual or a financial advisor with high-net-worth clients, understanding these changes can help you make informed decisions about estate and gift planning strategies.

Federal Estate, Gift, and GST Tax

Exemption. The federal estate, gift, and generation-skipping (“GST”) tax exemption is $13,610,000 per taxpayer, an increase of $690,000 from 2023. This means, with proper planning, a married couple can shield a total of $27.22 million from federal estate, gift, and GST tax in 2024. Absent any new legislation, these higher exemptions are scheduled to sunset on January 1, 2026, and revert to where they were in 2017. As indexed for inflation, the exemption will revert to approximately $7 million for individuals and $14 million for married couples in 2026.  As discussed in our previous advisories, the IRS and Treasury issued final regulations clarifying that the government will not look to claw back amounts gifted between 2018 and 2025 up to the exemption levels, even after the exemptions sunset and drop down again in 2026 and beyond.

Tax Rate. The federal, estate and GST tax rate remains at 40%.

Annual Exclusion from Gift Tax. The federal gift tax annual exclusion amount has increased to $18,000 per calendar year and per donee in 2024, up from $17,000 in 2023. Accordingly, a married couple can make gifts of up to $36,000 per calendar year per donee without using any portion of their gift tax exemptions. The exclusion for gifts made to a spouse who is not a citizen of the United States will be $185,000 in 2024 (up from $175,000 in 2023.)

Connecticut Estate and Gift Tax Exemption

The current Connecticut estate and gift tax exemption is $13,610,000 (up from $12,920,000 in 2023), which matches the federal estate and gift tax exemption. Currently, the tax rate on estates or gifts in excess of the Connecticut exemption is 12%.

New York Estate Tax Exemption and “Look Back”

For decedents dying on or after January 1, 2024, the New York state estate tax exemption is $6,940,000 (up from $6,580,000 in 2023). Estates larger than the New York estate tax exemption amount are subject to a “cliff,” meaning that estates worth between 100% and 105% of the exemption amount will get a decreasing benefit from the exemption, and estates larger than 105% of the exemption amount will receive no exemption from New York estate taxes.  The highest New York estate tax rate is 16%.  While New York does not impose a gift tax, it will add back into an estate the value of nearly all gifts made by a decedent within a three-year period of his or her death for purposes of calculating New York estate tax liability.

Gift Tax Update

Gift tax returns for gifts made in 2023 are due on April 15, 2024. You can extend the due date of your federal gift tax return to October 15, 2024, by either filing a Form 8892 to extend the time to file just your gift tax return or by filing a Form 4868 to extend the time to file your 2023 income tax return, which also extends the time to file your gift tax return. You can also extend the due date of your Connecticut gift tax return to October 15, 2024, by filing Form CT-706/709 EXT.

If you created a trust or contributed to an existing trust last year, you should direct your accountant to elect to have your GST tax exemption either allocated or not allocated, as the case may be, to trust contributions. It is critical that you not overlook that step, which must be taken even if your gifts do not exceed the annual gift tax exclusion and would, therefore, not otherwise require the filing of a gift tax return. You should call one of our attorneys if you have any questions about your GST tax exemption allocation.

IRA Required Minimum Distributions

As of 2023, the SECURE 2.0 Act raised the age that you must begin taking required minimum distributions (“RMDs”) to 73 (if you reached age 72 after December 31, 2022.)  This means that if you are the owner of an IRA and turned age 72 last year, you must start taking RMDs from your IRA by April 1, 2025, for the 2024 year.

If you are required to take an RMD in 2024, you must receive those distributions by December 31 of this year. The RMDs must be separately calculated for each retirement account that you own. Per the Secure 2.0 Act, there is a reduction in the excise tax imposed for a failure to take RMDs by the annual deadline to 25% (instead of 50%) of the amount by which the RMD exceeds the amount actually distributed during the calendar year with a further reduction to 10% if corrected within a two-year correction window.

Summary

In this advisory, we have covered noteworthy estate and gift tax changes in 2024. With the increased exemptions, 2024 may be a very good year to consider making large gifts well in advance of the 2026 sunset. If you have any questions about making gifts or anything else that is covered in this advisory, please reach out to your Wiggin and Dana attorney today.

Resources