As the new year approaches, we present our annual year-end advisory for 2024. This edition highlights noteworthy estate and gift tax changes and outlines planning opportunities for year-end and beyond. We also take a moment to recognize some of our accomplishments in 2024 and provide our outlook for the new year.
2025 ESTATE, GIFT, AND GST TAX EXEMPTIONS
Federal Estate, Gift, and GST Tax
Exemption. Effective January 1, 2025, the federal estate, gift, and generation-skipping transfer (“GST”) tax exemption will be $13,990,000 per taxpayer, an increase of $380,000 from 2024. With proper planning, a married couple can shield a total of $27.98 million from federal estate, gift, and GST tax in 2025.
Many experts opine that the future Trump administration and a Republican controlled Congress will endeavor to increase the federal and gift estate tax exemption. However, in the absence of new legislation, these higher exemptions will sunset on January 1, 2026, and revert to where they were in 2017. As indexed for inflation, the 2026 exemption would revert to approximately $7 million for individuals and $14 million for married couples. 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 will remain at 40%.
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Below is a simplified comparison of how a married couple with a $20 million taxable estate would be taxed at death in 2025 under current law versus after the exemptions sunset in 2026:
| Potential Estate Taxes During 2025 | Potential Estate Taxes in 2026 (after sunset) | ||
| Total Estate (married couple) | $20,000,000 | Total Estate | $20,000,000 |
| Estate Tax Exemption* | $27,980,000 | Estate Tax Exemption ($7,000,000 per person) | $14,000,000 |
| Previous Taxable Gifts | ($200,000) | Previous Taxable Gifts | ($200,000) |
| Remaining Estate and Gift Exemption | $27,780,000 | Remaining Estate and Gift Exemption | $13,800,000 |
| Total Estate | $20,000,000 | Total Estate | $20,000,000 |
| Less Remaining Estate and Gift Exemption (combined) | ($27,780,000) | Less Remaining Estate and Gift Exemption (combined) | ($13,800,000) |
| Taxable Estate | No Estate Tax Due | Taxable Estate | $6,200,000 |
| 40% Estate Tax | $- | 40% Estate Tax | $2,480,000 |
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Annual Exclusion from Gift Tax. The federal gift tax annual exclusion amount will increase to $19,000 per calendar year and per donee in 2025, an increase from $18,000 in 2024. Accordingly, a married couple can make gifts of up to $38,000 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 $190,000 in 2025 (up from $185,000 in 2024).
Connecticut Estate and Gift Tax Exemption
The Connecticut state estate and gift tax exemption will increase to $13,990,000 to match the federal estate and gift tax exemption. The Connecticut exemption in 2024 was $13,610,000. Currently, the tax rate on estates or gifts in excess of the Connecticut exemption is 12%.
New York Estate Tax Exemption and “Look Back”
The New York state estate tax exemption will be $7,160,000 for decedents dying on or after January 1, 2025 (up from $6,940,000 in 2024). 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.
Florida Has No Gift or Estate Tax
While Florida does not currently impose a gift or estate tax, a person may be subject to these taxes if they own or transfer real estate or tangible personal property located in another state. Also, it remains possible that Florida may impose a separate state estate tax in the future.
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Below is a chart comparing the estate, gift and GST tax changes from 2024 to 2025:
| Year | Federal Estate, Gift and GST Tax Exemption | Federal Estate, Gift and GST Tax Rate | Federal Annual Exclusion from Gift Tax | Federal Annual Exclusion from Gift Tax for Non-Citizen Spouses | Connecticut Estate and Gift Tax Exemption | New York Estate Tax Exemption |
| 2024 | $13,610,000 | 40% | $18,000 | $185,000 | $13,610,000 | $6,940,000 |
| 2025 | $13,990,000 | 40% | $19,000 | $190,000 | $13,990,000 | $7,160,000 |
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CORPORATE TRANSPARENCY ACT
Clients often utilize business entities, such as LLCs and limited partnerships, as a part of their estate plan. The Corporate Transparency Act (“CTA”) was enacted on January 1, 2021, as part of the National Defense Authorization Act creating a federal beneficial ownership registry applicable to corporations, limited liability companies (LLCs) and most partnerships (i.e., “Reporting Companies”). Under the CTA, Reporting Companies are required to file reports by January 1, 2025. However, on December 3, 2024, a federal court order preliminarily blocked the enforcement of such filing requirements. Click here to read a client alert on this court order. The Department of the Treasury is appealing the order. In the meantime, FinCEN updated its Beneficial Ownership Information (“BOI”) reporting website on December 6, 2024, to indicate that due to the federal court order, Reporting Companies are not currently required to file a BOI report. However, Reporting Companies may still choose to file.
When a Reporting Company files a report, there are a myriad of nuanced and specific reporting requirements; among them, the CTA requires Reporting Companies to disclose their beneficial owners, which may include individuals named in a trust and beneficiaries of an estate. What does this mean for Trustees and Executors?
Beneficial Owners of Trusts
While trusts are not Reporting Companies, trusts may be owners of Reporting Companies, therefore requiring trustees to disclose their beneficial owner(s). For example, if a trust owns or controls at least 25% of a Reporting Company, the following are considered beneficial owners:
(1) a trustee or other individual with the authority to dispose of trust assets.
(2) a beneficiary who is the sole permissible recipient of trust income and principal or who has the right to demand a distribution of or withdraw substantially all of the trust assets. However, minor beneficiaries of trusts are not considered beneficial owners; instead, the minor’s parent or legal guardian must be reported until the minor reaches the age of majority. At such time he or she must be reported accordingly.
(3) a grantor or settlor who has the right to revoke or otherwise withdraw trust assets.
Other individuals, such as trust protectors, investment and distribution advisors, and other decision makers may be considered beneficial owners and must then be disclosed. However, an individual acting on another’s behalf, such as an agent under a power of attorney, is not considered a beneficial owner and need not be disclosed.
Deceased Beneficial Owner’s Estate
After a beneficial owner dies, the Reporting Company has 30 days from when the deceased beneficial owner’s estate is settled to report the change in ownership to the beneficiary(ies). This means that the personal representative or executor of an estate should notify Reporting Companies about any changes in beneficial ownership as soon as the estate settles.
Click here to read more about the CTA and click here to listen to a podcast episode presented by the Private Client Services team at Wiggin and Dana.
YEAR-END PLANNING OPPORTUNITIES
Utilize the Annual Gift Tax Exclusion. The holiday season is rife with opportunities for gift giving to friends and family. Under the federal gift tax laws, each individual can gift up to $18,000 before December 31, 2024, to any number of people without exhausting any portion of his or her lifetime exemption from estate and gift tax. A married couple can gift up to $36,000 per donee. Such gifts may be made either outright or to certain types of trusts, as follows:
- Crummey Trusts. A donor may gift to an irrevocable trust under which beneficiaries have withdrawal rights, known colloquially as Crummey Trusts. Typically, a Crummey Trust is funded with the grantor’s annual gift tax exclusion, which is currently $18,000 (or $36,000 per married couple). For example, in 2024, a married couple can fund a Crummey Trust with 3 beneficiaries with up to $108,000 without triggering a gift tax. Multiple generations can benefit from this mechanism in a number of ways, including removing various types of assets from the grantor’s taxable estate and providing creditor protections to both the grantor and beneficiaries. Click here to read more on the benefits and limitations of Crummey Trusts.
- Funding Educational Expenses. A taxpayer may pay an individual’s tuition without incurring any gift tax liability if such payment is made directly to the educational institution. Reimbursement of tuition expenses to the benefitted individual will be treated as a gift for gift tax purposes. While this exception only applies to tuition, funds held in 529 College Savings Plans can be used to pay other education expenses such as room and board, books, and related items. Click here to read more on funding educational expenses and click here to listen to a podcast episode on this topic.
- Funding Medical Expenses. Medical expenses may be paid on behalf of an individual directly to the provider also without incurring any gift tax liability. In order to qualify, such medical expenses must not be paid by an insurance company and cannot be reimbursable by insurance. Permissible medical expenses include, but are not limited to, payments for prescription drugs; expenses related to the diagnosis, cure, mitigation, treatment, or prevention of disease; transportation essential to medical care; and premiums for medical insurance. Click here to read more on paying medical expenses on another’s behalf.
As mentioned above, Connecticut residents should be aware that Connecticut imposes its own gift tax. However, the Connecticut gift tax annual exclusion mirrors the federal gift tax annual exclusion and payment of permissible educational and medical expenses do not incur any gift tax liability in Connecticut.
For that reason, outright gifts, gifts in trust, and any other gifts to an individual beneficiary (including, for example, to insurance trusts and 529 College Savings Plans) should be coordinated to avoid inadvertently exceeding your gift tax annual exclusion amounts.
Gifting Beyond the Annual Gift Tax Exclusion to Use Record High Lifetime Exemptions. As aforementioned, we expect the federal estate and gift tax exemption to rise. However, absent legislative reform, it will sunset. Thus, you may wish to make large gifts that exceed the annual exclusion amounts to take advantage of the record high lifetime estate and gift tax exemption before the exemption could potentially drastically decrease on January 1, 2026. Some of these strategies may include:
- Spousal Lifetime Access Trusts (“SLATs”). For married individuals wishing to use their lifetime estate and gift exemption prior to 2026, many clients will utilize a SLAT, which is an irrevocable trust where the spouse is a permitted beneficiary. A SLAT allows a donor spouse to take advantage of the high gift tax exemption amount while removing any appreciation on the gift from the donor spouse’s taxable estate. A SLAT also allows the beneficiary spouse to have continued access to the gifted trust assets, if needed. Click here to read more and click here for a podcast episode on this topic.
- Dynasty Trusts. A Dynasty Trust (sometimes also referred to as a Generation-Skipping Trust), is an irrevocable trust that continues for as long as the applicable state law allows. Click here to read more and click here for a podcast episode on this topic.
- Qualified Personal Residence Trusts (“QPRTs”). A special kind of irrevocable trust, known as a qualified personal residence trust (or QPRT), may enable you to transfer your residence to your children (or others) at a significantly reduced value for tax purposes, yet allow you to continue to live in the residence for as long as you wish. Click here to read more on this topic.
- Grantor Retained Annuity Trusts (“GRATs”). If you are someone who has already made large gifts in the past, and therefore, has less exemption remaining, you may wish to utilize Grantor Retained Annuity Trusts (“GRATs”), which are an excellent tool to transfer wealth outside of your taxable estate while using a minimal amount of gift tax exemption in the process. Click here to read more on gifting to Grantor Retained Annuity Trusts.
Gift Tax Update. Gift tax returns for gifts made in 2024 are due on April 15, 2025. You can extend the due date of your Federal gift tax return to October 15, 2025, by either filing a Form 8892 to extend the time to file your gift tax return or by filing a Form 4868 to extend the time to file your 2024 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, 2025, by filing Form CT-706/709 EXT.
If you created a trust or contributed to an existing trust this 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, if you are the owner of an IRA and you turned age 72 this year, you must start to take RMDs from your IRA by April 1, 2025, for the 2024 year.
Effective September 17, 2024, the Department of Treasury and Internal Revenue Service issued final regulations updating the required minimum distribution (RMD) rules. The IRS determined that the provision requiring a beneficiary to continue receiving annual payments should remain the current law.
PRIVATE CLIENT SERVICES ACCOMPLISHMENTS
Launch of Private Wealth Blog
Join us in celebrating the inaugural year of “Future Focused: Private Wealth Insights” – a dedicated source for the latest insights in the world of sophisticated estate planning for high-net-worth individuals.
Explore topics ranging from domestic and international estate planning to private wealth disputes, philanthropy and much more. Our goal is to provide a comprehensive suite of materials related to estate planning and offer a space to keep informed of the latest news in the world of private client services. Click here to check out our latest content and here to subscribe to updates.
Sophisticated Estate Planning Podcast
As we wrap on the second year of our podcast, “Future Focused: Sophisticated Estate Planning” – where partners Erin D. Nicholls and Michael T. Clear explore high-level estate planning techniques and trends – we look back on the numerous topics we covered in 2024, including these most listened to episodes:
Awards and Recognitions
The firm’s Private Client Services practice and its partners, Michael T. Clear, Daniel L. Daniels, Leonard Leader, Steve B. Malech, Carolyn A. Reers, and Vanessa L. Maczko have been ranked in the eighth edition of the annual Chambers High Net Worth (HNW) 2024 Guide. We were also fortunate to rank in the fifteenth “Best Law Firms®” nationally and regionally in Connecticut and New York. “Best Law Firms®” rankings are based on an evaluation across the country through a rigorous and trusted data review process.
FINAL THOUGHTS
As 2024 comes to an end, we recommend that you consider the planning opportunities outlined in this advisory. We welcome discussion of these strategies with you in greater detail. In the meantime, we wish you and your family the very best for the holidays and a healthy, safe, and wonderful 2025.
Resources
- Private Client Services 2024 Year-End Advisory
- CTA Enforcement Blocked by Nationwide Injunction
- The Corporate Transparency Act (CTA) 2023 Update
- The Corporate Transparency Act: Navigating Reporting and Compliance
- Crummey Trusts Are Not So Crummy
- 3 Key Strategies for Funding Educational Expenses
- From Cradle to College: Strategies for Funding Educational Expenses
- The Gift of Medical Care – the “Med” of the “Med-Ed Exclusion”
- GRATs — Grantor Retained Annuity Trusts
- SLATS — Spousal Lifetime Access Trusts
- SLATs and Gifting
- Dynasty Trusts
- Key Considerations with Generation-Skipping Transfer Tax
- Qualified Personal Residence Trusts