What is the Gift Tax Exclusion for 2024?

For the 2024 tax year, the annual gift tax exclusion has increased to $18,000 per recipient, up from $17,000 in 2023. This means you can gift up to $18,000 to as many people as you wish without triggering any gift tax consequences.

For married couples, this exclusion effectively doubles to $36,000 per recipient. While the $1,000 increase may seem modest, it provides additional flexibility for gradually transferring wealth to your loved ones tax-efficiently during your lifetime.

Here’s what to know about the updated exclusion amounts and how to strategically use this tool within your overall estate planning strategy.

What is the Annual Gift Tax Exclusion?

The annual gift tax exclusion allows you to gift a certain amount of money or property each year without triggering any federal gift taxes. Think of it as a free pass from the IRS to transfer portions of your estate before you pass away.

The annual exclusion encourages families to begin transferring wealth across generations through thoughtful financial planning and purposeful gifting strategies. It’s a way for the tax code to say, “Go ahead, share that wealth with your loved ones now. We’ll worry about the rest later.”

The 2024 Annual Gift Tax Exclusion Amount

Thanks to annual inflation adjustments by the Internal Revenue Service, the annual gift tax exclusion has increased to $18,000 per individual. An increase of $1,000 from 2023’s $17,000 exclusion, giving you just a bit more flexibility in your gifting capabilities. For married couples, that figure effectively doubles to $36,000 and can be gifted tax-free to as many individuals as they wish.

Gifting Limits and Relationship to the Lifetime Exemption

The beauty of the annual gift tax exclusion is how it works in tandem with the overarching lifetime gift and estate tax exemption. For 2024, that lifetime exemption will be $13.61 million per individual.

For those with significant assets (business owners, real estate investors, highly compensated professionals), bumping up against that lifetime cap is indeed possible when transferring millions in property over one’s lifetime.

The annual exclusion serves as your first line of tax-free giving. Any gifts beyond that $18,000 per recipient can then be deducted from your $13.61 million lifetime exemption before triggering actual gift taxes. It’s an elegantly calculated system for gradually whittling away at that massive exemption without sending the IRS an extra cent along the way.

How to Make the Most of the Annual Gift Tax Exclusion

Under the annual gift tax exclusion, you can gift up to $18,000 in 2024 to virtually anyone – children, grandchildren, friends, family members, etc. As long as the recipient is a living individual with a valid Social Security number, they qualify as an eligible recipient for these tax-free gifts.

You can gift:

• Cash
• Securities
• Real estate
• Business interests
• Automobiles
• Art
• Collectibles
• Virtually any type of property you own

Even tuition payments for educational expenses are exempt from gift tax limitations entirely. The key distinction is that these gifts must truly represent complete, unconditional transfers of ownership from donor to recipient. You can’t try to maintain control or possession of a gift. That’d violate the gift tax laws.

Tax Reporting and Compliance Requirements

While the annual exclusion provides a generous buffer, you’ll still need to file a federal gift tax return (Form 709) anytime you gift beyond that $18,000 threshold to any individual during the calendar year.

The return records the excess amount as a reduction against your individual lifetime exemption. No actual out-of-pocket taxes are owed until you completely exhaust that $13.61 million figure, at which point the fun gift tax rates of up to 40% would come into play.

This is the IRS’s way of keeping meticulous records of your lifetime gifting activities. A bit tedious, yes, but a relatively small compliance price to pay for leveraging such generous tax benefits. And of course, our team can handle those filings seamlessly while ensuring you remain on the straight and narrow.

Strategic Considerations and Planning Opportunities

Simply gifting $18,000 to as many people as possible each year isn’t necessarily a strategic way to utilize the annual gift tax exclusion. Instead, you’ll want to carefully evaluate which gifting opportunities align best with your specific goals and situation.

Consider this:

• Do you have a child who could benefit from an influx of capital to start or grow a business?
• Do you have grandchildren with upcoming education expenses that the gift could help cover?
• Are you looking to begin transferring ownership of assets like real estate out of your estate?

When used thoughtfully, the annual exclusion becomes a fundamental component of your overall estate and legacy plan. Combining it with other advanced strategies like trusts, family limited partnerships, charitable giving vehicles, and more can maximize the impact of preserving and protecting your wealth long-term for your loved ones.

Coordinating with Other Estate Planning Tools

The annual gift tax exclusion can be extremely useful when funding trusts and other estate planning tools and strategies.

For example:

• Using the $18,000 exclusion to fund contributions to an irrevocable trust over time for asset protection purposes
• Frontloading generation-skipping trusts designed for multi-generational wealth transfer
• Funding vehicles like:
  • Family limited partnerships
  • Spousal lifetime access trusts (SLATs)
  • Qualified personal residence trusts (QPRTs)

Properly leveraging the annual exclusion to fund these types of tools and strategies can provide tax efficiency benefits and asset protection and facilitate the long-term transfer of your wealth according to your goals.

This is where our attorneys can provide guidance. We can choreograph a customized plan that uses the annual gift tax exclusion as one component of a comprehensive strategy tailored to your family’s unique situation.

Contact Hammond Law Group Today

At Hammond Law Group, preserving your wealth and fortifying your family’s future is more than just legal counsel – it’s a calling.

Seize the new tax changes as an opportunity to move your estate and legacy planning efforts forward with confidence and clarity. Schedule a consultation with our team today, and let’s embark on creating a legacy sturdy enough to withstand any storm that may lie ahead.

Ensuring your life’s cherished achievements transcend mere finances in order to secure and enrich the lives of your loved ones is the greatest return on investment imaginable.