Take Advantage of Higher Exemptions

Lifetime exemption limits for transferring wealth are historically high, but their end may be on the horizon. Current lifetime exemption amounts are set to expire on December 31, 2025, unless Congress acts to extend them. Reviewing your wealth preservation strategies with your financial professional will help ensure you’re taking full advantage of the opportunities available to you. Consulting your tax professional can help prevent unwelcome surprises.

The Federal Estate Tax Exemption

Individuals can gift up to $13.61 million to their heirs free of federal estate taxes. This amount doubles to $27.22 million when a spouse joins in the gift.

The GST Tax Exemption

The generation-skipping transfer (GST) tax applies when grandparents directly transfer assets to their grandchildren or other individuals without first leaving the asssets to their children. However, the generation-skipping transfer tax exemption is an amount that can be directly transferred to grandchildren, or into a GST trust for their benefit, without incurring federal GST taxes. For 2024, the exemption amount is $13,61 million, or $27.22 million if a spouse joins in the gift.

Annual Gift Tax Exclusion Amount

Individuals can gift up to $18,000 ($36,000 for a married couple) to an unlimited number of recipients free of federal gift taxes. Recipients pay no federal taxes on the gifts. Gifts greater than the annual exclusion amount will count against the giver’s lifetime gift tax exemption.

Other Exceptions

Payments made directly to a qualifying educational institution for a child’s or grandchild’s tuition are not subject to federal gift tax. In addition, direct payments made to a medical provider or medical institution for an individual’s care are not subject to gift tax.

Trusts Offer Advantages

Trusts may offer a useful vehicle for individuals to take advantage of annual gift tax exemptions and exclusions. Lifetime irrevocable trusts allow grantors to transfer assets into the trust using their lifetime exemption and exclusion amounts, in lieu of making cash payments to beneficiaries. Grantor-retained annuity trusts (GRATs) allow grantors to transfer assets to recipients, while reserving the right to receive annual annuity payments. Assets remaining in the trust pass tax free to beneficiaries.