End of Year Gift and Estate Planning Guidelines

As the end of 2024 approaches, it is not too late to consider year end gifting strategies to maximize gift and estate tax savings and pass assets to younger generations. In addition, those charitably inclined may reap income tax deductions on their 2024 taxes by making charitable donations this month. The following are a number of strategies for your consideration:

Annual Gifts

One simple step to take is to utilize your annual gift tax exclusion to make gifts to children, grandchildren and other relatives. In 2024, an individual may gift up to $18,000 per recipient without paying any gift tax and without utilizing any of the individual’s lifetime gift and estate tax exemption. A married couple may double that amount to $36,000 per recipient. The amount of tax free transfers can add up quickly. For example, a married couple with two children and four grandchildren may transfer $216,000 to their descendants. However, unlike the lifetime gift and estate tax exemption which is cumulative, the annual exemption expires each year. If you haven’t used it by the end of December, you will lose the opportunity for 2024. The annual exemption is set to increase to $19,000 per recipient ($38,000 for a couple) in 2025. Gifts may be in cash, stocks or securities, or even interests in closely held entities including those holding real estate interests (though in such cases an appraisal justifying the valuation of the interest would be needed). Gifts to qualified 529 Plans (providing for education) may also be made. In addition to the basic annual gift exemption, gifts that are made directly to educational institutions for qualified education expenses and gifts paid directly to providers for qualified medical expenses may be made in excess of the basic exemption and not be counted against a person’s lifetime exemption amount. Note that to qualify for the annual exemption, a gift must be a present interest. Present interest gifts are gifts which the recipient can enjoy immediately and without restriction. Gifts to trusts may not qualify depending on the terms of the trust.

Utilizing Lifetime Gift and Estate Tax Exemption

In addition to the annual gift tax exemption discussed above, Federal tax law provides individuals who are citizens or resident aliens a cumulative amount they may transfer over their lifetimes or at death. In 2024, the Federal lifetime exemption is $13.61 million ($27.22 million per married couple). In 2025, the lifetime exemption increases to $13.99 million ($27.98 million per couple). Unless reauthorized by Congress, the Federal exemption amount is set to automatically reduce to $5 million indexed for inflation (estimated to be approximately $7 million) as of January 1, 2026. Transfers made prior to January 1, 2026 will be able to utilize the larger exemption amounts. With a Republican president and Republicans controlling both houses of Congress in 2025, there is a likelihood that the higher exemption amounts will stay in place. However, the situation is uncertain at this time and we will not know whether the law will be reauthorized until sometime in 2025. Therefore, individuals with estates larger than approximately $7 million or couples with estates larger than approximately $14 million should still consider estate planning techniques to reduce their estates well in advance of the end of 2025. There are numerous techniques which may be utilized, including using trusts, discounted gifts and/or installment sales that are beyond the scope of this article, but which we would be happy to assist in implementing.

New York Estate and Gift Tax

New York no longer imposes a gift tax. However, a gift made within three years of a person’s death is added back into the deceased’s gross estate and is included in determining whether New York estate tax is due.

New York does impose an estate tax and the lifetime exemption for persons dying in 2024 is only $6.94 million. The 2025 exemption amount has not yet been released. There are many individuals and/or couples who will not be subject to Federal estate tax yet be subject to New York estate tax (which can be as high as 16%).  One key aspect of the New York estate tax is its “cliff” effect. If the value of an estate surpasses 105% of the exemption amount, which is $7.29 million for 2024, the entire estate becomes taxable, not just the amount exceeding the exemption limit. This can lead to significantly higher tax liabilities unless proactive planning is in place. In addition, New York does not follow the Federal “portability” rule which allows a surviving spouse to utilize the unused lifetime gift and estate tax exemption of the first spouse to die. Without proper planning, this valuable tool may be wasted.

Charitable Giving

Finally, for those charitably inclined, by making charitable gifts in December, you may have considerable income tax savings on your 2024 income taxes. Cash gifts to public charities or a Donor Advised Fund are deductible up to 60% of the adjusted gross income of an individual or married couple filing jointly. Contributions of appreciated stock or other non-cash items are deductible up to 30% of adjusted gross income. Any amounts in excess of these limits may be carried over for up to five years. Gifting appreciated stock or other assets may also avoid incurring capital gains on the sale of such assets. Another popular technique for persons mandated to take a Required Minimum Distribution (RMD) from their IRA is to make a Qualified Charitable Distribution (QCD) directly from the plan assets to a charity or charities of their choice to satisfy in whole or in part that person’s RMD and avoid its inclusion in the person’s adjusted gross income. In 2024, an individual may make Qualified Charitable Distributions of up to $105,000.

It is always a good time to review your financial picture, estate and gift planning. This article only scratches the surface of what can be accomplished. If you have any questions or would like assistance in your estate and gift planning, please feel free to contact your trusted R&E attorney or Theodore Metzger, R&E Member and Head of the firm’s Trust and Estates Department, who authored the above end of year update.