Estate Tax Changes to Consider in 2024

If you're interested in minimizing your estate tax liability, it's good to keep up with estate tax rules at both the state and federal level. This is especially important as the estate tax exemption threshold can change with each year.

Understanding these changes can help you plan your estate and help protect your loved ones and beneficiaries from an unexpected tax bill.

Here's some useful information to know about estate tax exemptions and strategies that you may want to consider for the 2024 tax year.

 

What Is an Estate Tax?

Simply put, the estate tax is a tax on the transfer of property when a person — referred to as the decedent — passes away. The tax is only applied to estates that are worth a certain amount of money. This amount can increase each year, so it's important to refer to the IRS page about estate taxes.

 

What is the Federal Estate Tax Exemption for 2024?

According to the IRS, most simple estates don't require the filing of an estate tax return.

Simple estates include items such as:

• Cash
• Publicly traded securities,
• Small amounts of easily valued assets

The IRS also mentions that simple estates generally don't include any special deductions, elections or jointly held property.

Any estates worth more than the estate tax exemption amount of $13.61 million are subject to an estate tax of 40%. 

 

Are Deductions Available for the Federal Estate Tax?

Yes, some deductions are available for estate taxes. You should consult with a tax professional to verify which ones might be possible for your situation. Additionally, be sure to refer to the estate FAQ on the IRS website.

Some common federal estate tax deductions include:

• Mortgages and other debts.
• Estate administration expenses.
• Losses during estate administration.
• Charitable deductions for parts of an estate left to a qualifying charity.
• Spousal deductions for parts of an estate transferred to a surviving spouse.

 

What About State-level Estate Taxes? What is the State Estate Tax Exemption for 2024?

In total, 12 states and the District of Columbia have estate taxes on the books and six have inheritance taxes – and several are making changes to their rules this year.

For example, the District of Columbia reduced its estate tax exemption from $5.67 million to $4 million in January 2021. This exemption amount is adjusted annually for cost of living, resulting in a 2024 exemption amount of $4,710,800 per person, up from $4,528,800 in 2023.

In addition, several states are enacting rate changes, inflation adjustments or changing exemption amounts. Historically, many state-level estate tax rules were tied to federal rules that allowed a federal estate tax credit for estate taxes paid to states. When that rule expired, estate taxes in many states expired with it, according to the Tax Foundation.

Does California Have an Estate Tax?

As of 2024, California does not impose a state estate tax. This means that residents of California are only subject to federal estate taxes, which currently apply to estates exceeding the federal exemption amount of $13.61 million per individual.

Historically, California had an estate tax known as the "pickup tax," which was tied to the federal estate tax credit. However, this tax was eliminated in 2005 when the federal government discontinued the state death tax credit. Since then, there have been no new state-level estate taxes introduced in California.

 

What Happens to the Federal Estate Tax Exemption in 2026?

The 2017 Tax Cuts and Jobs Act (TCJA) increased the lifetime estate and gift tax exemption, nearly doubling it from previous levels. However, these provisions are set to sunset, or expire, at the end of 2025.

If the TCJA sunsets as planned, the estate and gift tax exemption will revert to pre-TCJA levels. This means the exemption might decline to approximately $7.5 million per individual and $14.5 million for a married couple, subject to adjustments for inflation. The exact amounts will depend on inflation rates over the next few years.

Families and individuals who wish to take advantage of the current higher exemption levels should consider implementing their estate planning strategies before the end of 2025. Strategies may include making large gifts, setting up trusts or other wealth transfer mechanisms to maximize the use of the current exemption limits.

It's also important to stay informed about any potential legislative changes. While the current law mandates a reversion to lower exemption levels, future administrations or Congress may pass new laws that could alter the estate tax once again.

For those looking to navigate these changes, consulting with an estate planning professional is highly recommended. They can provide personalized advice and strategies to ensure that your estate plan aligns with the current laws and anticipates future changes. 

Additionally, estate planning for unmarried couples is particularly important with these potential upcoming changes. Unlike married couples, unmarried partners do not benefit from the same legal and tax advantages, making it important to carefully plan their estates to protect their assets and ensure their wishes are honored.

 

How to Protect Your Estate

As we approach the potential shift in federal estate tax laws in 2026, it remains uncertain whether Congress will enact the proposed changes. Additionally, states may continue to show interest in taxing estates and inheritances, further complicating estate planning for individuals.

However, those with substantial estates should speak with their tax and legal advisors about proactive steps to protect their legacies.

Consider Making Gifts

As of 2024, the lifetime exemption for making gifts to heirs and trusts without incurring gift taxes is $13.61 million per individual. Given the potential changes in tax laws, now is an opportune time to take advantage of these existing exemption levels.

The current high exemption amounts are set to revert to pre-2018 levels in 2026. This reduction would decrease the amount that can be transferred tax-free. By making gifts now, you can maximize the current lifetime exemption and avoid the impact of future lower exemption limits.

Additionally, if the proposed changes under the American Families Plan were to become law, gifts of appreciated assets made after the effective date could subject recipients to capital gains taxes on the appreciation. Transferring appreciated assets now can help your heirs avoid these potential taxes, preserving more wealth for them.

Utilizing the annual gift tax exclusion is another strategic move to consider. In 2024, you can give up to $18,000 per recipient without affecting your lifetime exemption. This allows you to transfer wealth incrementally each year without incurring gift taxes.

Consult with a tax advisor to determine if making gifts now aligns with your financial goals and estate planning objectives. A tax professional can provide personalized advice and strategies, considering potential legislative changes and your unique circumstances.

Meet with an Estate Planner

Even if you already have an estate plan in place, now is a good time to revisit it and discuss potential changes with your estate planning attorney – they may be able to help you create a flexible estate plan that can be adjusted in case of federal or state tax law changes.

 

Stay Up to Date on Future Changes

There is always a potential for estate tax laws to change, especially when a new administration enters the White House as one will after the 2024 election cycle.

Changes in tax laws may include adjustments to estate and gift tax exemptions, modifications to tax rates and the introduction of new regulations affecting how wealth can be transferred. Keeping ahead of these changes allows for proactive planning, helping to mitigate tax liabilities and optimize the preservation of wealth.

State legislatures are also active in laws regarding estate taxes. Some states, like Illinois, are considering increases to their estate tax exemption amounts, while others, such as New York, have already adjusted their exemptions for 2024. It's important to monitor these developments, as state estate taxes can impact the overall tax liability of your estate.

For wealthy families, staying informed about these potential changes is essential. Changes in tax laws can alter the effectiveness of current estate plans, requiring adjustments to strategies like lifetime gifting, trust establishment and asset transfers.  

Stay ahead of the curve and secure your legacy. If you need assistance with your estate plan, City National Bank’s wealth planners are here to help. They're ready to guide you in choosing a professional executor or trustee, helping to ensure that your estate is managed according to your wishes and providing peace of mind for you and your beneficiaries.