2024 Estate Tax Update

I. Federal Gift and Estate Tax Exemption

Effective as of January 1, 2024, the inflation adjusted Federal gift and estate tax exemption increased from $12.92 million to $13.61 million. In addition, the annual gift tax exclusion increased from $17,000 per donee to $18,000 per donee.

While the increased exemption is good news, bear in mind that the exemption will "sunset" in 2026 and be reduced to approximately $7 million. Those whose estates exceed the current exemption (or even the 2026 exemption) should consider making gifts at this time to reduce the size of their taxable estates.

The benefit of doing so is not only that the value of the gifted asset is removed from one’s taxable estate, but also that all subsequent appreciation in the asset is removed from the estate and will pass tax-free to your family members.

There are many different types of trusts to accomplish one’s gifting goals:

1. Spousal Lifetime Access Trust ("SLAT”);
2. Qualified Personal Residence Trust ("QPRT");
3. Grantor Retained Annuity Trust ("GRAT"); and
4. Various other trusts including charitable trusts.

Many clients are comfortable making gifts to a SLAT because the spouse and children are the permissible beneficiaries of such trusts.

II. New York State Estate Tax Cliff

With respect to the New York estate tax, the current exemption is $6.94 million and it is not scheduled to sunset. However, the New York State exemption gets phased out as the size of one’s estate grows. If the estate is more than 105% of the exemption amount (approximately $7.3 million), the exemption is lost, and the estate is taxed from the first dollar. This is commonly referred to as the NYS Exemption Cliff.

For estates that are close to or slightly over the “cliff”, there is a technique to avoid the cliff called a "Santa Clause", which allows the estate to make a charitable contribution to bring the size of the estate below the cliff. The family comes out ahead because the amount of the charitable contribution is less than the tax savings.

For more information about the Santa Clause, click here.

III. Revocable Trusts

Prior to COVID, the process of probating a Will in the Surrogate’s Courts in New York was relatively straightforward and quick, unlike certain other states, such as Florida. However, since 2020, we have been experiencing lengthy delays in the Surrogate’s Court in New York which continue to today.

Accordingly, to circumvent such delays, we are now recommending that our clients execute Revocable Trusts instead of Wills to avoid having to probate all of their assets upon death. This is particularly important for liquid assets such as those typically in brokerage accounts. Probate delay could impact the ability to trade on the account or withdraw funds for several months, which could be problematic in a declining market or if access to funds is needed immediately. Using a Revocable Trust results in immediate control over, and access, to such assets.

If you have questions or would like to discuss these issues in more detail, please reach out to us.