Estate Planning Ideas and Reasons to “Gift” Now

Publish Date: November 14, 2023

This article is meant to give just a couple of quick updates on gift and estate tax limits that have recently been announced by the IRS along with some additional thoughts and ideas. If estate planning is the furthest thing from your mind right now because of the large exemptions that exist, with inflation and with the legislative changes taking place in 2026, you may want to pay attention.   


The annual gift tax exclusion is going to $18,000 in 2024, versus the $17,000 that we have in 2023.  What does that mean?That means that a couple can gift one of their kids (or all) a gift of $18,000 without the gift being taxable, or even hitting the IRS’ radar for that matter.  Ok, so what about if you gift something above the exclusion amount, say $118,000? Well, it certainly does hit the IRS’ radar because you would have to fill out an IRS form 709 saying that you gifted $100,000 over the annual exclusion amount.  However, that does not mean that the $100k is taxable. This is the biggest source of confusion for a lot of consumers, and even some financial professionals. Just because you gift $118,000 in 2024, does not mean that the excess $100,000 is taxable. Then what the heck is the limit for? Any gift above that limit goes to reduce your lifetime exemption. But only when your lifetime exemption is completely used up is when you start getting taxed, whether you deplete your lifetime exemption during your life, or after death.  If you are confused, know that we will discuss more on the lifetime exemption in a bit. 

Again, any gifts that fall below that annual exclusion do not reduce the lifetime exemption amounts. Which means a couple in the year 2024 can gift $36,000  to whoever they like. If they do that with five people, that’s $180,000 that is basically a “freebie”.  For 529 plans, you can choose to gift via a “5-a year Election” which is basically five years’ worth of the exclusion in one year, which would equate to $90,000 per donor.  But let’s save 529 Plans for another time.

Leveraging Today’s Exemption Amounts

The lifetime exemption for gift taxes is the same as for estate taxes. In other words, it is “unified”. And for 2024 the gift and estate tax exemption is going to a whopping $13.61 million per person versus todays $12.92 million. That means that for a couple, the combined exemption is over $27 million. So, in my example above where the person gifted $118,000 to their kid, that extra $100,000 would not be taxable unless the entire $13.61 million was already used up.  If none of the exemption was used up prior to the gift, then they now have $13.51 million left as an exemption. 

What about the sunsetting of the Tax Cuts and Jobs Act of 2017 that will roughly cut these exemption amounts in half?  Staring down the barrel of these changes is something that should jolt wealthy families into action.  Let’s use an example: Let’s say that in 2024 you have a couple that has an estate that is worth $25 million. They understand that the time to act is now because if they die with a $25 million estate after 2026, when the estate tax exemption goes to roughly $12 million for the couple (around $6 million per person), their estate will have a tax bill of 40% on the excess above $12 million. That is approximately $5.2 million($13 million excess times 40% tax) that would go to Uncle Sam!

Conversely, what if instead that couple gifted away, say, $20 million in 2024? They would still have $7 million left in their lifetime gift and estate tax exemption, which means they would’ve paid no gift taxes. They would’ve also left themselves $5 million in their estate to live off of.  Now, of course, depending on how their existing $5 million estate grows between now and the time that they die, it could have an estate tax, but up to this point in time, their tax has been zero and will likely never be anywhere near the $5.2 million they would’ve been subject to in our previous example.  This is an important topic if you or family members are fortunate enough to have these “problems”!!!

A few notes on the above:

  1. The above example shows how gifting a certain property today (during life) might be more prudent than passing on that same property after death, especially if death happens after 2026!
  2. Another benefit of gifting, especially property that is quickly appreciating, is that gifting “freezes” the value of the property to whatever the property is worth when you gift it.  Conversely, if you die with that property 20 years from now, what is the amount that goes against your exemption amount?  Whatever it is worth when you die!
  3. Gifting can have a downfall of no “Stepped Up Cost Basis” that would otherwise “generally” be achieved if the asset was transferred after death.  Some assets are better to die with rather than “gift”.

IRS Clawback?

The IRS has indicated that leveraging today’s high gift tax exclusion is OK and will not be “recouped” after 2026 when these exemption amounts are roughly chopped in half.  Think of it as an estate tax sale that is not “clawed back”.  If you go into Best Buy and buy a TV that is 50% off but the sale ends the next day, Best Buy is not going to call you up the next day and ask for more money, just because the price of that TV has doubled.  The IRS has been clear that the “claw back” will not happen.

In Closing

Because the examples above show some very large dollar amounts, it’s easy to dismiss the above, as if we will never need to address that type of planning. With the way inflation is going and the massive amount of wealth that is being built in our country, I beg to differ. This article was very high level and did not dive into estate issues like generation skipping transfers, irrevocable life insurance trusts, SLATS, GRATs, Bypass Trusts, etc.  However, if that is something that interests you, CG Financial Group unique in our understanding of these complex topics and can help… If nothing else, ask us about Wills, Revocable Trusts, and Power of Attorneys that almost everybody should consider.

Written By:  Charlie Gipple, CFP®, CLU®, ChFC®

Written By: Charlie Gipple, CFP®, CLU®, ChFC®

Charlie is the Founder and CEO of CG Financial Group, a financial services company that serves consumers as well as financial professionals. CG Financial Group, LLC is one of the fastest growing marketing organizations in the country for annuities, life, and long-term care because CG Financial Group is different! Charlie is recognized throughout the industry as one of the foremost thought leaders and subject matter experts on retirement planning, life insurance, long-term care planning, tax planning, and estate planning. He is also an industry keynote speaker conducting 100-150 speeches per year. He has spoken at the MDRT Top of the Table as well as other large forums and has also appeared on TheStreet.com and AM Best TV. With over two decades of experience, Charlie is unique in his broad knowledge across the life insurance, LTC, annuities, and retirement planning. His writings appear monthly in various financial magazines across the country. He holds a bachelor’s degree in Finance from the University of Northern Iowa, is FINRA Series 7 and Series 66 licensed and also holds the CFP®, CLU® and ChFC® designations.


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