Annual Estate and Gift Tax Limits

What is Estate Tax and the Annual Gift Tax Exclusion?

Estate Tax is a federal tax levied on the transfer of property upon the death of an individual. It applies to the total value of a person's estate as of the date of their passing. However, one of the crucial aspects of estate tax planning is understanding the Estate Tax Exemption. As of 2024, the exemption allows estates worth up to $13.61 million to be passed on to heirs tax-free. This means that if your estate's value falls below this threshold, your beneficiaries will not be subject to estate tax.

Gift Tax is a tax levied on gifts made to others. However, the IRS currently has a lifetime gift tax exemption that is aligned with the estate tax exemption (currently $13.61 million). This exemption allows individuals to gift this amount throughout their lifetime without facing gift tax consequences.

The Annual Gift Tax Exclusion is a provision that allows individuals to gift a certain amount each year to others without incurring gift tax. It is an effective mechanism for reducing the taxable estate while allowing you to transfer assets to your heirs gradually over time.

What does this mean? You can give a gift of up to $18,000/year to an unlimited number of others, without incurring gift tax and without it counting towards your lifetime gift tax and estate tax exemption. For a married couple, the amount is doubled - $36,000/year. 

If your estate will potentially exceed $13.65 million, utilizing the annual gift tax exclusion is one of the most simple but effective ways to reduce your estate’s potential exposure to estate tax.

Understanding Estate Tax can be a crucial component of Estate Planning, and Anthony Rinaldi & Company, LLC can help you prepare a plan with this and other key Estate Planning strategies.