As we near the end of October, the season of Halloween can bring ghosts, goblins, and things that go bump in the night. But when it comes to financial planning, the real thing you don’t want to be haunted by is the gift tax. For successful, generous individuals, understanding the lifetime gift tax exemption is crucial to avoiding any terrifying surprises down the road.
What is the Lifetime Gift Tax Exemption?
The lifetime gift tax exemption is the amount of wealth you can transfer during your lifetime, free of gift tax1. For 2024, the exemption is $13.61 million per individual1 or $27.22 million per couple1 — up from last year’s exemption of $12.92 million1. However, here’s the trick: This exemption is set to drop significantly if the 2017 Tax Cut and Jobs Act expires, possibly to around $7 million2.
That looming deadline shouldn’t send chills up your spine, but it is something to plan for. If you intend to pass along substantial wealth to charity, now is the time to take advantage of today’s higher exemption. Waiting until the limit drops could cost you and your family or charity of choice millions in unnecessary taxes.
How the Exemption Works
The lifetime exemption covers more than just cash gifts. It applies to property, stock, or other assets you give to others. But here’s the jump scare: If your total gifts throughout your life exceed the exemption, you’ll owe gift tax on any amount over the limit.
It’s important to remember the annual gift tax exclusion as well. This is the amount you can give to any one person each year without it counting against your lifetime exemption. For 2024, the annual exclusion is $18,000 per recipient1. This means you can give up to $18,000 to as many people as you want each year, gift tax-free, without using up any of your lifetime exemption.
Don’t Let the 2026 Deadline Haunt You
The possibility of a significant reduction in the gift tax exemption on the horizon means that high-net-worth families should act now to make the most of the current limits. For example, if you wait until 2026 or after, the wealth you transfer over the new lower exemption may be subject to gift tax, which can reach rates as high as 40%. That’s a pretty ghastly number.
Tricks for Treating Your Family
With Halloween just around the corner, think of your financial planning as a way to treat your family to a future free from the horrors of a lack of proper planning. Here are a few strategies to consider:
- Gift Now: If you’re in a position to make large gifts, doing so before 2026 will help you lock in today’s higher exemption.
- Annual Gifting: Use the $18,000 annual exclusion to reduce your taxable estate without eating into your lifetime exemption.
- Trusts: Explore trust structures to pass wealth efficiently and minimize tax exposure.
We’re Here to Help!
At Peak Financial, we’re experienced professionals at helping successful individuals like you navigate these complex rules and take full advantage of opportunities to transfer wealth in a tax-efficient way. Don’t let the impending changes to the lifetime gift tax exemption haunt your financial plans. Reach out to us today to develop a strategy that is designed to ensure your legacy, without a frightful tax burden.
This Halloween season, avoid being spooked by the tax code — let’s work together to turn your financial planning into a treat for your loved ones.
Sources:
1Nerd Wallet: https://www.nerdwallet.com/article/taxes/gift-tax-rate
2Merrill: https://www.ml.com/articles/estate-gift-tax-exemption-sunset.html
Osaic FA, Inc. and its representatives do not provide legal or tax advice. You should consult a legal or tax advisor regarding any legal or tax information as it relates to your personal circumstances.
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