The Sunset of the Federal Estate and Gift Tax Exemption

Note: Spangler and de Stefano, PLLP does not provide tax advice. This article is for informational purposes only. Please consult with your tax advisor or tax attorney regarding advice for your specific circumstances.

Minnesota currently does not have a gift tax. However, estate tax in Minnesota is assessed on those estates that currently have more than $3,000,000 in assets. Please note that an estate means one individual. However, the federal government has both a gift tax and an estate tax. But, the gift and estate tax amounts at the federal level are combined. As a result, at the federal level, the gifts that you make and your estate tax are under the same lifetime exempt amount. Currently, the combined gift and estate tax exemption at the federal level increases every year. However, this provision sunsets in 2026 unless it is extended by Congress.

In 2024, the IRS allows each person to give away, during their lifetime, and/or as part of their estate up to $13.61 million in assets or property. A lot of people incorrectly assume that the federal exemption does not apply to them. The reason for this incorrect assumption is because most people do not have assets of $13.61 million so they stop paying attention. Now, is the time to pay attention to the federal estate and gift tax exemption. If you have not filed gift tax returns for gifts that you have made in the past, now is the time to do so before this provision sunsets (plus, if you do not, your estate will be taxed for the amounts that you gifted that are taxable).

The federal gift and estate tax exemption matters for most individuals. It matters because the federal government only allows a certain amount to be gifted to each individual tax free. In 2024, that tax free amount is $18,000 per gift recipient (or $36,000 per married couples splitting gifts). For gifts above the tax-free amount, you must “dip into” your federal gift and estate tax exemption, which you do by filing a gift tax return.

For example, you gift your children on New Year’s Day the annual gift amount allowed each year. So, in 2024, that would be $18,000 (or $36,000 if you are married). But, for a wedding gift, you provide each child $50,000.00. Therefore, you will need to file a gift tax return for the $50,000 wedding gift because that is over the amount of the annual gift, which is tax free, you already provided your child. That $50,000 wedding gift is included in the federal gift and estate tax exemption and is taxable if you are under the exemption amount and you do not file a gift tax return.

If Congress does not extend the current combined gift and estate tax exemption and it sunsets, there is a higher probability that your estate will be subject to a federal estate tax due to the gifts that you have made during your lifetime. Now is the time to take advantage of the combined federal estate and gift tax exemption in the event that it is not extended by Congress. Failure to plan may end up costing your estate (and your loved ones) significant tax consequences.

Spangler and de Stefano, PLLP assists business owners and individuals with their estate planning.

The material contained herein is for informational purposes only, and is not intended to create or constitute an attorney-client relationship between Spangler and de Stefano, PLLP and the reader. The information contained herein is not offered as legal advice and should not be construed as legal advice.